business · Business / Operations
Working capital: the quiet line that keeps the lights on
Profit on paper can still leave a firm short of cash if inventory and receivables swell.
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Working capital is the money tied up in day-to-day operations: inventory you have bought, invoices customers have not paid yet, minus what you still owe suppliers. Growing sales often increase that need before cash arrives.
A company can show accounting profit and still struggle to pay wages if cash is stuck in stock or slow collections.
Takeaway: When you read a business, ask how fast cash turns—not only whether the P&L looks green.
Analysis
The simple loop
Buy inputs → hold inventory → sell → collect cash. Stretch any step and you need more financing (bank lines, supplier credit, or owner cash).
Red flags in plain language
- Receivables growing faster than sales
- Inventory days rising without a clear seasonal reason
- Payables stretched so far that supplier risk rises
Why it matters to readers
Suppliers, employees, and lenders feel working-capital stress before equity headlines do. For investors and job-seekers alike, cash conversion is often the earliest honest signal that “growth” is expensive.
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Not personalized financial advice. Corrections: corrections@capitalchronicle.news