Working capital and the cash cycle
Working capital = current assets minus current liabilities. It is the money tied up in simply operating.
The cash conversion cycle is the number of days between paying for inventory and collecting from customers. Shorter is better; negative is exceptional.
Why negative is a superpower: a business that collects from customers before paying suppliers is funded by its own suppliers, at no interest. Some of the strongest retailers and platforms run this way, and it is invisible on the income statement.
What to watch:
• Receivable days rising = customers paying slower, or revenue being pulled forward
• Inventory days rising = product not selling
• Both are early-warning signs that show up before revenue does
Chart: the cycle, and the portion suppliers finance.