← Business Metric: Financial (all topics)
Working capital intensity
What it is
The cash tied up between paying for inputs and being paid for output - inventory, receivables and retention money, less what suppliers finance. In conversion and project businesses it is often the largest capital employed, exceeding the plant itself
It scales with revenue, so growth consumes cash before it generates any, and it rises with input prices even when volume is flat
Impact on industries
- Growth is cash-negative by construction - a business can double revenue, report profit throughout and still fail on liquidity
- Government and PSU customers extend the cycle through inspection, certification and fund-release chains the supplier cannot influence
- Customer advances invert it entirely - where bargaining power allows, the counterparty funds the build and growth generates cash instead of consuming it
- It is the clearest management-quality signal in an asset-light business, since the cycle reflects discipline rather than cycle luck