Title: How Working Capital Works
Headings: How Working Capital Works
How Working Capital Works
Key Takeaways
What Is Working Capital?
Not All Companies Are the Same
Evaluating Companies
The Bottom Line

Content: How Working Capital Works
Investing Fundamental Analysis
How Working Capital Works
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Ben McClure is a seasoned venture finance advisor with 10+ years of experience helping CEOs secure early-stage investments. Learn about our editorial policies
Ben McClure
Updated Mar 28, 2021
Cash is the lifeline of a company. If this lifeline deteriorates, so does the company's ability to fund operations, reinvest, and meet capital requirements and payments. Understanding a company's cash flow health is essential to making investment decisions. A good way to judge a company's cash flow prospects is to look at its working capital management (WCM). Key Takeaways
Working capital is the day-to-day cash that a company needs to run business operations. It is the difference between a company's current assets and its current liabilities. A company's working capital provides an indication of its short-term financial health and how liquid it is. All industries operate differently and therefore have different working capital requirements, such as retailers versus manufacturers. Assessing a company's supply chain management, inventory turnover, and its days sales outstanding (DSO) can provide an indication of its working capital management practices.