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.
Measured as
Measure Working Capital with the same date, unit basis, and accounting or policy definitions used in the rest of your model.
Operator takeaway
- 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.
- Tie Working Capital to the same balance-sheet date, scenario, and decision memo you are using elsewhere in the model.
- Document which claims, costs, or adjustments your team includes before comparing numbers across forecasts, covenants, or valuation work.
Next decision
- Read Runway and burn: gross vs net burn, working capital, and cash levers if the decision depends on interpretation, policy, or trade-offs beyond the raw formula.
- Decide whether Working Capital belongs in cash planning, valuation, or debt monitoring so the number is used in the right model.
Where to use this on MetricKit
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.