I've been reading up on business finance, but I keep running into conflicting definitions. When calculating working capital, should inventory be part of the equation? Some sources say yes, others are vague or say it depends. What's the actual standard approach, especially for practical use?
That confusion is pretty common, especially since financial strategies vary by industry. But traditionally, yes—inventory is considered part of current assets, which means it is included when calculating working capital. It's important, though, to evaluate how liquid that inventory really is, since it might not convert to cash quickly. This affects how useful it is in covering short-term liabilities. A great breakdown of the topic is in this article that tackles the question, does working capital include inventory (https://eboostpartners.com/working-capital-inventory/) — it goes into the mechanics and nuances in a practical, straightforward way.
One thing businesses often overlook is how much their operational flow depends on managing assets with varying liquidity. Even strong sales numbers can't compensate for poor short-term resource planning.