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Working Capital

Working capital is the capital tied in the operating cycle — from purchasing inventory to collecting cash from sales. In e-commerce, it includes inventory, prepayments, marketplace receivables minus trade payables. Formula: Operating Working Capital = Operating Current Assets – Operating Current Liabilities

Why It Matters

  • •Shows how much capital is continuously tied up in the inventory and cash cycle.
  • •In e-commerce, long lead times, prepayments, and marketplace payout delays can significantly increase working capital needs.
  • •Supplier payment terms (trade payables) can partially finance the operating cycle and reduce required working capital.
  • •Poor replenishment and assortment decisions directly increase working capital requirements without necessarily improving profit.
  • •Improving working capital efficiency enables faster, self-funded growth without additional debt or equity.

Connection to Capital

Working capital represents the portion of capital locked in the operating loop — inventory, prepayments, receivables, and payables. Reducing the amount of capital required for the same level of sales, or accelerating the cycle, improves capital efficiency, increases ROWC, and expands the company's ability to grow.

Related Terms

CCC (Cash Conversion Cycle) Capital Lock Allocation of Capital

Related Articles

Why Restock Tools Miss the Point: You Can't Separate Margin From Inventory Turnover
Lead Time as a Financial Variable: Why Buying "Cheaper" Can Cost You More
Cost of Capital — A Critical Factor in Working Capital Investment Decisions
Making Better Restocking Decisions When Capital Is Limited
Why Payment Terms Matter Much More Than They Seem

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