Working capital

What it means

Current assets less current liabilities — the short-term capital tied up in operations.

The exam angle

Growing revenue with faster-growing receivables means the growth is being funded by the balance sheet, not the customer.

Where it appears in the syllabus

• Financial Statement AnalysisCFA Level I · exam weight 11–14% · The three statements, inventories, long-lived assets, quality of earnings.
• Corporate FinanceCFA Level I · exam weight 6–9% · Governance, working capital, capital allocation, capital structure.

Related terms

• Cash conversion cycleThe time between paying for inventory and collecting cash from the customer.
• Financial leverageThe use of debt to finance assets, magnifying returns to equity in both directions.
• Operating leverageThe sensitivity of operating income to a change in sales, driven by the proportion of fixed costs.
• Accrual accountingRecognising revenue when it is earned and expenses when they are incurred, regardless of when cash moves.
• Balance sheetA statement of what a company owns and owes at a single point in time.
• Book valueThe accounting value of equity: assets less liabilities as reported.