Working capital describes the short-term resources available to operate a business. A commonly used accounting measure is current assets minus current liabilities. It offers a snapshot of short-term financial capacity, but the quality and timing of those assets and liabilities matter as much as the headline number.
Accounts receivable
Receivables are amounts customers owe for goods or services already supplied. If customers take longer to pay, a business may report sales while cash collection remains delayed. Ageing schedules and bad-debt provisions help readers assess how collectible the balances may be.
Inventory management,Inventory includes goods held for sale or materials used in production. Too much inventory can tie up cash and create storage, insurance or obsolescence costs. Too little inventory can disrupt production or lead to missed sales. The appropriate level depends on the business model and supply chain.
Accounts payable
Payables are amounts owed to suppliers and other creditors. Payment terms can help a company manage its cash cycle, but overdue obligations may damage supplier relationships or create penalties. Comparing payable days with receivable and inventory days gives a broader view of operating efficiency.
The cash conversion cycle,The cash conversion cycle estimates the time between paying for inputs and collecting cash from sales. It is often analysed using inventory days, receivable days and payable days. A shorter cycle may reduce the amount of cash tied up in operations, but industry context is essential.
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