Quick answer
Working capital is the short-term cash tied up in stock, debtors, creditors, and day-to-day trading timing.
How it works
- Define the business question clearly.
- Use a simple framework to calculate or compare the number.
- Check the result against margin, timing, costs, or market position.
- Use a practical tool to test decisions before acting.
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What working capital means
Working capital is typically driven by stock, trade debtors, trade creditors, and timing.
Why it matters
A business can grow sales and still create cash stress if too much cash is trapped in stock or unpaid invoices.
How to improve it
- Reduce slow-moving stock
- Chase debtors earlier
- Negotiate supplier terms
- Improve margin
- Forecast cash timing
Common questions
What is working capital?
Working capital is the short-term cash tied up in stock, debtors, creditors, and day-to-day trading timing.
Why does working capital matter?
Because poor working capital management can create cash pressure even when sales are growing.