Vinu: Manu, I keep hearing the term working capital. What does it actually mean in simple terms?

Manu: It’s the money required to run your day-to-day business—to pay suppliers, hold inventory, and manage customer credit.

Vinu: So how do I calculate it?

Manu: Very simple:

Working Capital = Current Assets – Current Liabilities

For example,

Debtors ₹20 lakh + Inventory ₹15 lakh + Cash ₹5 lakh = ₹40 lakh

Creditors ₹25 lakh → Working Capital = ₹15 lakh

Manu: Not necessarily. Too high means cash is blocked. Too low means liquidity risk.

Manu: Three things—Debtors, Inventory, and Creditors.

Vinu: Let’s start with debtors.

Manu: If your monthly sales are ₹15 lakh and debtors are ₹30 lakh, it means you’re giving 2 months credit. That delays cash inflow.

Vinu: And inventory?

Manu: If inventory is ₹25 lakh but monthly sales are ₹10 lakh, you’re holding excess stock. That’s idle cash.

Vinu: What about creditors?

Manu: Creditors are your support.

If suppliers give you ₹20 lakh credit, that reduces your own cash requirement.

Manu: Exactly—

collect faster, hold optimum stock, and negotiate better credit from suppliers.

Vinu: What happens if I mismanage this?

Manu: Even a profitable business can face cash shortage and struggle to pay salaries or EMIs.

Vinu: One simple formula to remember?

Manu: Yes—

Faster inflow + Slower outflow = Healthy working capital

Vinu: Final takeaway?

Manu: Working capital is not about profit—it’s about keeping your business running smoothly every single day.

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