Working Capital Questions Answered
Real answers about cash flow analysis, financial planning, and business liquidity management from our team in Ho Chi Minh City.
Why These Questions Matter
Over the past three years, we've worked with Vietnamese businesses facing similar challenges. Small manufacturers wondering if their inventory levels are sustainable. Service companies trying to understand payment cycles.
The questions below come from real conversations with clients who needed clarity before making financial decisions. Not textbook scenarios—actual situations that kept business owners awake at night.
We've organized them by topic because context matters when you're evaluating your working capital position.
Common Working Capital Concerns
These eight questions cover the fundamentals most businesses need to understand first
How do you calculate working capital?
Take current assets minus current liabilities. Sounds simple, but the challenge is knowing which items to include and how to value inventory accurately for your specific industry.
What's a healthy working capital ratio?
Between 1.2 and 2.0 works for most businesses, but manufacturing companies often need higher ratios due to inventory requirements. Service businesses can sometimes operate comfortably lower.
Why does working capital fluctuate seasonally?
Sales patterns drive inventory needs and receivables timing. A company selling to retailers builds inventory in summer for holiday sales, then converts that to receivables in autumn, and finally to cash by year-end.
When should we be concerned about negative working capital?
If it's temporary and planned, maybe not at all. If it persists for multiple quarters without a clear reason, that signals potential liquidity problems worth investigating thoroughly.
How does working capital affect growth plans?
Growth consumes cash faster than most expect. A 30% sales increase might require 40% more working capital if you're extending payment terms to win new customers or stocking additional product lines.
What's the difference between working capital and cash flow?
Working capital is a balance sheet snapshot showing your liquidity position. Cash flow tracks actual money movement over time. You can have adequate working capital but still face cash shortages if timing is off.
Should we focus on days sales outstanding?
Yes, but not in isolation. DSO tells you collection speed, but you also need to monitor days inventory outstanding and days payable outstanding to understand your complete cash conversion cycle.
How often should working capital be reviewed?
Monthly at minimum. Weekly is better if you're in a growth phase or experiencing market volatility. Real-time dashboards help, but monthly detailed analysis catches trends that daily numbers might obscure.
Detailed Analysis Questions
These get into the specifics of working capital management strategies
How do you handle working capital during rapid expansion?
Expansion strains working capital in ways that surprise even experienced owners. You're paying for inventory and labor before revenue arrives, and new customers often demand longer payment terms. We typically recommend securing a working capital facility before starting expansion—not after cash gets tight. The analysis should model three scenarios: conservative, expected, and aggressive growth, with working capital requirements calculated for each path.
What role does inventory management play in working capital?
Inventory is often the largest working capital component for product businesses. Too much ties up cash unnecessarily. Too little risks lost sales and customer frustration. The goal is finding the balance point where you maintain adequate stock without excess. This requires analyzing turnover rates by product category, understanding lead times from suppliers, and monitoring slow-moving items that drain resources without generating returns.
Can you improve working capital without reducing inventory?
Absolutely. Focus on receivables collection and payables management. Tightening credit terms from 60 to 45 days frees cash without touching inventory. Negotiating better supplier terms adds another lever. Some companies implement early payment discounts that cost less than financing charges. The key is examining all three working capital components—inventory, receivables, and payables—to find the most practical improvements for your specific situation.
How does currency exchange affect working capital for importers?
Currency movements create hidden working capital drains. If the dong weakens against your supplier's currency, you need more local cash to pay the same invoice. Many Vietnamese importers learned this during 2023 when exchange rate volatility increased. Hedging strategies help, but they add complexity. At minimum, working capital projections should include currency scenarios rather than assuming stable rates. Building a buffer specifically for exchange risk prevents scrambling when rates shift.
What's the connection between working capital and profitability?
Profitable companies can still fail from working capital mismanagement. You can book a sale in January but not collect payment until March—your income statement looks great while your bank account struggles. This timing gap between accounting profit and actual cash explains why profitable businesses sometimes need emergency financing. Understanding your cash conversion cycle helps bridge this gap. The faster you convert inventory and receivables to cash, the less working capital you need to maintain operations.
Meet Our Analysis Team
These are the people who actually answer your questions and review your working capital situation. Based at our District 9 office in Ho Chi Minh City.
Darek Wójcik
Senior Financial Analyst
Specializes in manufacturing sector working capital and inventory optimization. Previously worked with Polish exporters before moving to Vietnam in 2021.
Lachlan Byrne
Cash Flow Strategist
Focuses on service businesses and digital companies with minimal inventory but complex receivables patterns. Eight years experience across Australian and Southeast Asian markets.
Still Have Questions About Your Working Capital?
These FAQs cover common situations, but your business has unique characteristics that might need specific attention. Schedule a conversation with our team.