When is a business likely to have high working capital?

A business is likely to have high working capital when it is experiencing rapid growth. During periods of growth, companies often invest in additional inventory, equipment, and other resources to meet increasing demand. This investment usually leads to higher current assets than current liabilities, resulting in increased working capital.

In a growth phase, businesses need to maintain sufficient liquidity to ensure that they can finance operations and cover short-term obligations. Therefore, the combination of rising sales and associated costs often boosts current assets significantly, leading to high working capital as the company is prepared to scale its operations efficiently.

In contrast, large fixed expenses typically tie up capital that may not be readily available for operational needs, frequent inventory turnover suggests efficient management and possibly lower levels of capital tied up in inventory, and relying heavily on debt financing can lead to higher current liabilities, both of which would not support high working capital.