What is Working Capital?
Working capital is the money tied up in running the business day to day: stock plus money owed by customers plus cash, minus what is owed to suppliers.
Updated
Meaning
English
Working capital is the money tied up in running the business day to day: stock plus money owed by customers plus cash, minus what is owed to suppliers.
Roman Urdu
Working capital woh paisa hai jo rozana karobar me laga hai: stock, gahakon ka udhaar aur cash, minus suppliers ka dena.
Also called operating capital, karobari sarmaya.
Example
A distributor holds 2.4 million rupees of stock, is owed 900,000 by shops and has 300,000 in cash, but owes suppliers 1.5 million. Its working capital is 2.1 million rupees.
How it works
Working capital is why growing businesses often feel short of money. Every extra rupee of stock or udhaar must be paid for before it turns back into cash. Three levers free it up: hold less slow stock, collect udhaar faster, and get longer credit from suppliers. Each one returns cash without needing more sales.
The cash conversion cycle measures the gap in days: how long stock sits, plus how long customers take to pay, minus how long suppliers give. Shortening it by even a week can release more cash than a bank loan would provide.
In Nafaa
Nafaa shows the parts of working capital in one place: stock value in the stock report, customer balances in the khata and directory, supplier balances in their ledgers, and what the shop owns and owes on the Shop accounts page.
Related terms
- Cash Flow
Cash flow is the movement of money into and out of a business over a period, which shows whether it has enough cash to pay its bills on time.
- Dead Stock
Dead stock is inventory that has not sold for a long time and is unlikely to sell at its normal price.
- Accounts Receivable
Accounts receivable is the money customers owe a business for goods or services already supplied on credit.
- Inventory Turnover
Inventory turnover is how many times a business sells through its average stock in a period, calculated as cost of goods sold divided by average stock at cost.