What is working capital and how is it different from cash flow?

Working capital is the cash permanently locked in day to day operations, mainly receivables and stock, less the credit your suppliers extend. Cash flow is the movement over a period. A profitable company can post strong margins yet still run out of cash because rising working capital absorbs every euro of profit.

Can the working capital need be negative?

Yes, if operating payables and other financing balances exceed operating assets. A negative cash conversion cycle alone does not prove that working capital is negative because the daily cost and sales bases differ.

How accurate is this estimate?

This estimate separates sales, cost of goods sold and purchases. It excludes VAT, advances and other operating balances. Validate it against actual average receivables, inventory and payables, using a consistent period.

What is a good cash conversion cycle?

There is no universal target; it depends on your sector and model. The useful question is the trend, whether your cycle is shortening or lengthening, and how it compares with peers. A senior CFO can benchmark it and set a realistic improvement plan.

Free calculator

Working capital calculator: estimate cash tied up in your business

Estimate cash tied up in receivables and stock, after supplier financing. Use annual sales, costs, purchases and their corresponding payment and inventory days.

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Your working capital need

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Display currency

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Annual credit sales, excluding VAT

Annual cost of goods sold, excluding VAT

Annual credit purchases, excluding VAT

Receivable days (DSO)

Inventory days (DIO)

Payable days (DPO)

Estimated working capital need

€378,082

Cash conversion cycle: 75 days

The timing indicator is 75 days. Use the balances below to assess the cash amount.

Indicative estimate. The full breakdown and scenarios are shown below.

Working capital breakdown

Component	Amount
Revenue per day	€5,479
Cash tied up in receivables	€328,767
Cash tied up in inventory	€147,945
Financing from suppliers	– €98,630
Working capital need	€378,082
Cash conversion cycle	75 days

How each lever frees cash

Each lever uses its own daily base. Receivable and inventory reductions are capped at the days entered, up to 10 days. These scenarios do not guarantee a cash release.

Collect faster (lower DSO)
Reducing receivable days by 10 could release about €54,795, using credit sales as the base. Review invoicing, collections and deposits.
Hold less stock (lower DIO)
Reducing inventory days by 10 could release about €32,877, using cost of goods sold as the base. Check demand and service levels before reducing stock.
Pay smarter (higher DPO)
Extending payable days by 10, without breaking supplier trust, would free about €32,877. Negotiate terms rather than simply paying late.

What does this result mean for your business?

Under your assumptions, €378,082 is tied up in receivables and inventory after deducting supplier payables. This is an operating funding need, not a loss.

Before deciding, compare this estimate with your actual balances and monthly movements. An annual average can hide an inventory peak or a significant late payment.

Turn the estimate into a cash forecast

The levers above are scenarios at constant activity, not cash already recovered. Check the receivables involved, inventory you could actually reduce and supplier terms you could negotiate. Then allocate receipts and payments to the weeks in which you expect them.

Build a 13 week cash forecast

Mercova helps you explain monthly differences and follow through on actions over time. The first conversation checks whether annual financial support fits your situation.

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How this is calculated

Receivables use annual credit sales, inventory uses annual cost of goods sold, and payables use annual credit purchases. Each annual base is divided by 365 and multiplied by its corresponding days. The operating working capital estimate is receivables plus inventory less payables. The cash conversion cycle is a timing indicator, not a currency amount.

Receivables = sales × DSO / 365 · Inventory = cost of goods sold × DIO / 365 · Payables = purchases × DPO / 365

Simplified estimate over 365 days, excluding VAT, advances and other operating balances. Use consistent annual periods and matching day definitions. Seasonality and actual balances may change the result. No guaranteed cash saving.

Why this matters

Working capital can explain why a profitable business runs short of cash.

Fund growth without panic

Fast growth multiplies your working capital need. Knowing the number lets you size a credit line before the cash gap appears, not after.

Free cash already inside the business

Check whether earlier collections or lower stock could release cash. Compare achievable changes and their costs before considering new borrowing.

Prepare for a sale or raise

Buyers and lenders scrutinize working capital. A clean, well understood cycle protects your valuation and the headline price.

Go further

Fractional CFO for SMEs and startups

A senior finance partner who builds your cash forecast, fixes the working capital cycle and keeps you ahead of the gap.

See CFO advisory

Why profitable SMEs and startups run short of cash

The mechanics behind the cash gap, and the practical moves that close it before it becomes a crisis.

Read the article

Working capital questions

Turn your working capital into available cash

We map your cash conversion cycle, find the trapped cash and build a forecast you can run the business on. Book a free, concrete review.