Working Capital

Working capital is money the business must fund before it earns anything, so growth consumes cash: a company doubling revenue with an unchanged working capital cycle needs roughly double the working capital. This is why fast-growing companies can be profitable and simultaneously desperate for financing. More working capital is not better — it usually means slower collection or slower stock movement, so the goal is a shorter cycle, not a larger balance. Some businesses, notably retail and subscription models, run negative working capital because customers pay before suppliers are paid, which is a structural advantage rather than a distress signal.