adamriofc Working Capital Management
Measures how much cash is trapped in the operating cycle and how much funding is required to run it.
Metrics
- Net Working Capital = Current Assets − Current Liabilities.
- Working Capital Ratio = Current Assets ÷ Current Liabilities (≥ 1.5 conservative for SMEs).
- Cash Conversion Cycle (CCC) = DIO + DSO − DPO — days cash is tied up from buying stock until cash returns.
- Working Capital Requirement = CCC (days) × COGS per day — operational funding needs.
Scope & Safety
- Use for: planning working-capital loan needs, negotiating supplier payment terms, assessing operational liquidity.
- Do not use for: long-term investment loan decisions (use capital-budgeting), or total solvency assessment.
- A long CCC means cash is absorbed into receivables/inventory — priorities: speed up collections, reasonably extend supplier payables, reduce dead stock.
- WCR figures are need estimates; add a 10–20% buffer for seasonality.
Hybrid Execution Model
Pass inputs to engines/working-capital.js: netWorkingCapital, workingCapitalRatio, cashConversionCycle, workingCapitalRequirement. Wrap in a Trust Envelope (risk MEDIUM; as_of; human review for credit applications).
Worked Example
Input: CA 500 million, CL 250 million; DIO 60 days, DSO 45 days, DPO 30 days; COGS/day 2 million. Output: NWC = 250 million; Ratio = 2.0; CCC = 60 + 45 − 30 = 75 days; Requirement = 75 × 2 million = 150 million. Interpretation: the business is liquid, but needs ~150 million to fund the 75-day working capital cycle.