⁉️Question: Why isn’t cash part of working capital?

‼️Answer: In technical terms, Cash is a ‘Non-Operating Asset’ as opposed to items like Inventory, Accounts Receivable, etc. which are ‘Operating Assets’. In plain english terms, Cash is an output of the business and is not employed in the business’ operations. In contrast, an item like Accounts Receivable is directly employed in the business.

🤯Explanation: This is tricky for people who are new to Finance/Accounting, because the Accounting definition for Working Capital is Current Assets - Current Liabilities. And according to Accounting, Cash is a Current Asset. But the entire goal with analyzing Working Capital is to understand how much money is tied up in the business (aside from cash) in short-term assets/liabilities and so Cash is excluded.

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