What it means in practice
Current assets can include cash, receivables and inventory. Current liabilities include obligations expected to be settled within the relevant short term classification. The figure gives a view of resources and obligations, but it does not prove that cash will be available on a particular date. Inventory may move slowly and customers may pay late. Operational planning therefore needs a cash forecast alongside the balance sheet measure. Growth can increase this requirement even when margins remain unchanged. Additional stock and customer credit may absorb cash before sales are collected. Examine the timing and quality of each balance: slow stock, disputed receivables and overdue suppliers behave differently from healthy trading balances. A reduction in working capital can release cash, but should not damage service or depend on unpaid obligations being ignored.
A fictional worked example
A fictional business with ₦8 million of current assets and ₦5 million of current liabilities has ₦3 million of working capital.
A useful question
How much of your current assets can actually become cash before the next commitments fall due?
Read the practical guide