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Why Working Capital Matters for Business Cash Flow and Valuation
Working capital is the money a company needs to keep its daily business running.
Cash is used to buy materials, make products and sell them to customers.
The company gets its cash back when customers pay.
Suppliers may give the company time to pay, which reduces how much of its own money it needs.
A business that gets cash back quickly can use it again and may need less borrowing.
However, some businesses naturally keep lots of products in stock or wait a long time for customers to pay.
Investors therefore compare inventory, customer payments and supplier payments rather than looking at one number alone.
High borrowing can make apparently efficient working capital more expensive.
Kaynes Technology is presented as an example where rising receivables reduced cash flow and hurt its valuation.
Lean working capital can help businesses generate cash internally, reduce borrowing needs and support higher valuations.
Net working capital is calculated as current assets minus current liabilities, while the cash conversion cycle measures inventory, receivables and payables efficiency.
Mankind Pharma appears more efficient than Cipla, but its advantage is partly supported by substantially higher current borrowings and finance costs.
Retailers, jewellery companies and government contractors can naturally have high inventory or receivable days, making business context essential for comparison.
Kaynes Technology’s rising receivables and nearly doubled cash conversion cycle weakened operating cash flow and coincided with a sharp stock-price and valuation decline.
- Who
- Businesses and investors, including the examples discussed such as See’s Candies, Cipla, Mankind Pharma and Kaynes Technology.
- What
- An analysis of working capital, cash conversion cycles, debt, operating cash flow and their implications for business quality and valuation.
- Where
- The examples primarily concern companies operating in India, with See’s Candies providing a California-based comparison.
- When
- The article was published on September 19, 2026, and discusses financial years including FY25 and FY26.
- Why
- Working capital affects how quickly a business converts sales into cash, how much it must borrow and how resilient its profits and valuation may be.
Lean Working Capital
Working Capital Risks
Cash generation
Lean Working Capital
Fast inventory turnover, prompt customer payments and favorable supplier terms can help a company generate internal cash and reduce borrowing.
Working Capital Risks
Large inventories, delayed receivables or unfavorable supplier terms can tie up cash and force a company to rely on short-term borrowing.
Business comparison
Lean Working Capital
A low cash conversion cycle may indicate efficient operations, stronger bargaining power or faster-moving products.
Working Capital Risks
A low working-capital requirement can be misleading when it is supported by current borrowings, which may increase finance costs and financial risk.
Valuation impact
Lean Working Capital
Sustained working-capital efficiency can support stronger free cash flow and potentially higher valuation multiples.
Working Capital Risks
Rising working-capital needs can weaken operating cash flow, require additional capital and justify more conservative valuations.
Key facts
- Net working capital formula
- Current assets minus current liabilities.
- Cash conversion cycle formula
- Inventory days plus receivable days minus payable days.
- Cipla FY26 NWC
- ₹17,132 crore, equal to 222 NWC days based on FY26 revenue of ₹28,163 crore.
- Mankind Pharma comparison
- It churned its NWC 32 times during FY26, but current borrowings made up 52% of current liabilities.
- See’s Candies acquisition
- Berkshire Hathaway acquired the California chocolate business for $25 million in 1972.
- Kaynes Technology
- Its receivable days doubled in FY26 and its CCC days nearly doubled, according to the article.
- Kaynes Technology stock movement
- The stock fell from ₹7,705 in October 2025 to ₹3,511, a 54% decline cited in the article.
Sources
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