Working capital is what a company owns that turns into cash within a year minus what it owes within a year. Current assets minus current liabilities.
Working capital is what a company owns that turns into cash within a year minus what it owes within a year. Current assets minus current liabilities.
It's the money a company has to run itself. Pay staff. Buy stock. Wait for customers to pay.
Positive working capital means the company could cover the year's bills from the year's assets. Negative means it couldn't. Not on paper.
Apple on September 30 2023. In millions.
$143,566 million minus $145,308 million is negative $1,742 million. Apple owed $1.7 billion more within the year than it had coming in within the year.
A year earlier it was wider. Current assets $135,405 million. Current liabilities $153,982 million. Working capital negative $18,577 million.
Apple is fine. Here's why. Apple sells an iPhone and gets paid at once. It pays the supplier who made it weeks later. Customers' cash arrives before suppliers' bills are due. The bigger Apple gets the more of other people's money it holds at any moment. Its current liabilities are mostly accounts payable. $62,611 million of the $145,308 million is money owed to suppliers who are happy to wait.
The trap is reading a big cash pile as safety.
Cash looks safe. It isn't safe if the bills due next quarter are bigger. Working capital is the number that compares them. A company with $30 billion in cash and $145 billion due this year is not sitting on a cushion. It's running a machine that has to keep turning.
And the reverse. A small company with positive working capital and slow-paying customers can still miss payroll. The timing inside the year matters. Working capital is the first check. It isn't the last one.
You're on Apple's treasury team. Current liabilities just passed current assets. A director asks whether the company should raise cash.
Find working capital on September 30 2023.
$143,566 million minus $145,308 million is negative $1,742 million.
Find what it was a year earlier.
$135,405 million minus $153,982 million is negative $18,577 million.
Which way did it move?
It got less negative by $16,835 million. Apple's position improved.
Reply to the director in one sentence.
Working capital is negative because customers pay us before we pay suppliers. It improved by $17 billion this year. We don't need to raise cash for it.
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