← Back to glossary
Category: Financiar · Acronym: Working Capital
Working capital
Quick answer: The difference between current assets and current liabilities — the cash a company has to fund daily operations. A key financial-health indicator.
Key takeaways
- DSO (days sales outstanding) — how fast you collect from customers
- DIO (days inventory outstanding) — how long goods sit in the warehouse
- DPO (days payable outstanding) — how long you defer supplier payments
What working capital is
Working capital = Current assets − Current liabilities. It represents the operational liquidity a company has to cover short-term obligations and fund current activity (inventory, receivables, supplier payments). Positive, optimised working capital = a healthy firm; negative — or too high (tied up in inventory) — signals risk.
The cash conversion cycle (CCC)
The three drivers C-level tracks to optimise working capital:
DSO (days sales outstanding) — how fast you collect from customers
DIO (days inventory outstanding) — how long goods sit in the warehouse
DPO (days payable outstanding) — how long you defer supplier payments
Formula: CCC = DSO + DIO − DPO. The lower the CCC, the less cash is locked in operations.
Why it is a board priority
Excess inventory and overdue receivables tie up cash that could fund growth. Cutting the CCC by a few days frees, at a firm with tens of millions in revenue, hundreds of thousands in cash — with no new borrowing. That is why optimising working capital is a strategic CFO objective.
How Azuvio helps
Azuvio is not accounting software and does not compute financial ratios — those stay in the ERP/accounting tool. What Azuvio does, as an operational layer: directly reduces DIO (through inventory optimisation and dead-stock elimination) and DSO (through correct, fast, error-free invoicing). Concrete impact on working capital, attacked from the operational side, not the accounting side.
Frequently asked
- What is working capital?
- Working capital is the difference between current assets and current liabilities — the liquidity a company has to fund daily operations and cover short-term obligations.
- How is working capital calculated?
- Working capital = Current assets − Current liabilities. Its efficiency is tracked via the cash conversion cycle: CCC = DSO + DIO − DPO.
- Why is working capital important to management?
- Excess inventory and overdue receivables tie up cash that could fund growth. Shortening the conversion cycle frees cash without new borrowing — a strategic CFO objective.
- How does Azuvio help optimise working capital?
- Azuvio is not accounting software and does not compute the ratios. As an operational layer it reduces DIO (inventory optimisation, dead-stock removal) and DSO (fast, error-free invoicing), attacking working capital operationally.
Related terms
- Cash flow — The actual movement of money in and out of a company over a period — a measure of liquidity, not profit.
- DSO (Days Sales Outstanding) — Average number of days from invoice issue to cash collection. Key cash-flow indicator.
- DPO (Days Payable Outstanding) — Average number of days from supplier invoice receipt to actual payment.
- Inventory turnover — How many times stock is fully sold and replenished in a period — a measure of capital efficiency.
Last updated: