Glossary
What is working capital?
Working capital is current assets minus current liabilities: the money tied up in running the business day to day. Cash, customer invoices and stock on one side; supplier bills, tax owed and short-term borrowing on the other. It rises when customers pay slowly or stock builds, and that rise absorbs cash.
Most of the difference between profit and cash in a given month is a change in working capital. A profitable month in which debtors rise by more than the profit is a month in which cash falls.
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