Definition
Working capital reflects short-term assets and liabilities (receivables, payables, deferred revenue). It can cause profit and cash to diverge.
How to use it
- AR increases consume cash (you sold but haven't collected yet).
- AP increases can preserve cash (you haven't paid yet).
- Deferred revenue increases can boost cash (prepay) while revenue is recognized later.
Why this matters
This term matters because cash timing and risk are usually the difference between a plan that works on paper and a plan that survives. Use consistent definitions so decisions are comparable over time.
Practical checklist
- Write a 1-line definition for "Working Capital" that your team will use consistently.
- Keep the time window consistent (weekly/monthly/quarterly) when comparing trends.
- Segment results (channel/plan/cohort) before drawing big conclusions from blended averages.
- Sanity-check with a related calculator from the same category on MetricKit.
- Read the related guide (e.g., Runway and burn: gross vs net burn, working capital, and cash levers) for context and common pitfalls.
Where to use this on MetricKit
Calculators
- Real Return (Inflation-adjusted) Calculator: Convert nominal return into real return given an inflation rate (and compare the difference).
- Deferred Revenue Rollforward Calculator: Bridge billings to recognized revenue by rolling deferred revenue forward for a period.
- Break-even Revenue Calculator: Estimate the revenue needed to break even given fixed costs and gross margin.
- NPV Calculator: Calculate net present value (NPV) from initial investment, annual cash flow, years, and discount rate.
- IRR Calculator: Estimate internal rate of return (IRR) for an investment using yearly cash flows.
Guides
- Runway and burn: gross vs net burn, working capital, and cash levers: A practical guide to runway: compute net burn, understand why cash differs from profit, and how working capital and collections change runway.
- Cash conversion cycle: turn working capital into runway: A practical guide to the cash conversion cycle (CCC): how AR/AP timing changes cash, how to reduce days outstanding, and why runway depends on working capital.
- Cash runway: how to estimate burn, break-even, and survival time: A practical guide to runway: net burn, gross profit, break-even revenue, and how to avoid common cash planning mistakes.