Working Capital
Working capital is current operating assets minus current operating liabilities — the cash tied in the operating cycle.
Definition
Working Capital refers to the cash tied in the operating cycle. Keep that definition fixed when comparing series, managers, or regimes — renaming the same tape does not create a new signal.
Why it matters
Equity risk premia compress or expand with earnings paths and factor regimes. When the cash tied in the operating cycle shifts, related hedges, limits, and narratives usually need an explicit update rather than a quiet assumption.
Case
Suppose a desk is positioned for the opposite of what working capital is saying. If the cash tied in the operating cycle moves against that book, the first question is not “is the story clever?” but whether size, hedges, and stop logic still match the observation.
How to read it
Separate index beta from residual; know the sector and factor loadings of the claim. Prefer a short written null hypothesis for Working Capital: what would falsify the current reading in the next window?