working capital

Money tied up in day-to-day operations: what customers owe you plus other current assets, minus what you owe suppliers and customers who prepaid. Prepayments can make it negative, which funds growth.

Working capital is the money tied up in a company's day-to-day operations. The textbook definition is current assets minus current liabilities. For decisions it helps to look at the operating part only: what customers owe you (receivables) plus anything you paid in advance, minus what you owe suppliers and providers (payables) and minus what customers prepaid (deferred revenue).

The sign tells you who funds whom. Positive working capital means the company pays for the work before its customers pay for it, so growth needs cash. Negative working capital means customers and suppliers fund the company: prepaid subscriptions, packages and long supplier terms put money in the bank before it is earned or spent. A negative number on paper is often good news for cash.

What moves cash is the change in working capital. As a prepaid business grows, its negative working capital grows too and releases cash; when sales slow down, it shrinks and takes that cash back. Lines sold on payment terms do the opposite: every extra hryvnia of sales per quarter waits as another hryvnia of receivables.

Example

Klasna's working capital items on 30 November 2026, in UAH:

Item	UAH
Teams invoice, not yet paid (receivable)	640,000
Tutor payouts due 5 December (payable)	−1,918,370
November video, AI and Club hosts, paid in December (payable)	−375,930
Prepaid lessons not yet taken (deferred revenue)	−6,180,000
Club annual plans, months still owed (deferred revenue)	−343,800
Working capital	−8,178,100

640,000 − 2,294,300 − 6,523,800 = −8,178,100: families and tutors are lending Klasna 8.2 million interest-free. Teams works the other way. If its quarterly invoice grows from 640,000 to 1,600,000, another 1,600,000 − 640,000 = 960,000 waits in receivables at every quarter end.

Common mistakes

Reading negative working capital as trouble. For a prepaid business it usually means customers fund growth.
Forgetting it reverses. The cash released while prepaid sales grow comes back out when they slow.
Adding a line on payment terms without funding it. Profitable growth on credit still ties up cash.
Mixing cash into the operating view. Keep cash out to see what operations alone tie up or release.

Learn it in the course

Working capital: who pays whom first · Prepayments, payouts and invoices: the cash conversion cycle, working capital on one date, when negative working capital funds growth and why other lines eat cash.
Case: can Klasna grow Teams without a loan? · Three profitable corporate deals and a summer cash low: test invoice payment terms, invoicing, prepayment and pace against the buffer, and decide whether working capital financing needs a loan.