Finance and accounting
Working capital
Cash tied up in running the business day to day.
Facts checked against sources onWhat does Working capital mean?
Working capital is current assets minus current liabilities. In cases it usually means operating working capital: money owed by customers (receivables) plus inventory, minus money owed to suppliers (payables). A growing business often needs more working capital, which uses cash even when profits are good.
Where does it come up in case interview prep?
- Supply chains explainedLesson in How industries work: the toolkit
- Inventory and the cost of holding itLesson in Sourcing, trade and supply risk
- A light balance sheet, and why profit is not cashLesson in Business basics for non-business learners
- How the three statements link: one company through all threeLesson in Reading a business through its numbers: the three statements, cash and value
- The cash flow statement, and why profit is not cashLesson in Reading a business through its numbers: the three statements, cash and value
- Working capital in days: receivables, inventory, payables and the cash conversion cycleLesson in Reading a business through its numbers: the three statements, cash and value
- EBITDA versus operating profit versus free cash flowLesson in Reading a business through its numbers: the three statements, cash and value
- Return on capital against its cost: ROIC and WACC in plain wordsLesson in Reading a business through its numbers: the three statements, cash and value
Related terms
- Balance sheetWhat a company owns and owes at one point in time.
- Free cash flowCash from operations minus capital expenditure.
- Inventory turnoverHow many times stock is sold and replaced in a year.
- ProfitThe money left over after costs. Revenue minus cost.
- RevenueMoney earned from sales, before costs.
- CostWhat it takes to make and sell the product in a period.
- Fixed costA cost that stays the same when volume changes, within a normal range.
- Variable costA cost that rises and falls with how much you make.
Learn it in context
See Working capital at work in a lesson from How industries work: the toolkit, with checks as you go.
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