Creating sustainable value over time depends on efficient management of financial resources, with optimising working capital as a critical element. It acts as a financial health indicator, measuring the organisation’s stability while directly supporting shareholder returns. Far from being just another finance KPI, working capital reflects operational discipline across the entire business and demands active engagement beyond the finance function.
Working capital is fundamentally the difference between current assets (short-term resources) and current liabilities (short-term obligations). It represents the liquidity buffer available to meet near-term commitments, sometimes described as operating liquidity or a financial cushion.
It serves as the essential link between daily operational management and the company’s medium- and long-term financial strategy. By providing a clear measure of operational solvency, it ensures that the business can meet its obligations on time, maintaining stability even as priorities evolve.
Effective working capital management is about having the right liquidity levels, tailored to the specific operating model and the stage of the business cycle. This helps reduce reliance on external borrowing, improves return on invested capital, and directly supports shareholder value.
Additionally, it acts as a shock absorber for unforeseen disruptions or internal issues, such as production line stoppages in manufacturing.
The goal is to achieve balance: avoiding both liquidity shortages that create financial stress in the short term, and excess idle cash that cannot be deployed to generate additional value. Poor working capital management can effectively paralyse the core of any company, even one with strong paper profitability.
Often, companies can unlock more value through effective working capital management than through simply expanding operating margins. It is about improving the conversion of assets into cash while managing liabilities with precision.
Optimising working capital creates a virtuous cycle over time. By shortening the cash conversion cycle, businesses can accelerate the return on investments and improve overall profitability.
This process directly increases free cash flow, which becomes a powerful lever for corporate strategy. Companies can choose to reinvest in new projects, reduce debt, or return value to shareholders through dividends and share buybacks.
It also builds the capacity to adapt to market changes quickly, funding growth opportunities without compromising financial stability.
Improving working capital should never be viewed as a narrow technical exercise owned solely by the finance department. It is a strategic priority that demands collaboration across all business functions.
Operations, procurement, sales, and finance must work in concert to manage payment terms, inventory levels, and receivables in a way that aligns with the company’s overall strategy and risk appetite.
Ultimately, cash remains the central measure of a company’s resilience and opportunity. Optimising working capital is about reliably turning profit into cash, and managing that cash to deliver sustainable value for shareholders over time. It is the practice of converting earnings into liquidity—and liquidity into lasting strategic advantage.
