Working Capital

Perform a cash conversion cycle, earnings quality, and working capital deep-dive for the company specified by the user: $ARGUMENTS

Before starting, read ../data-access.md for data access methods and ../design-system.md for formatting conventions. Follow the data access detection logic and design system throughout this skill.

Follow these steps:

1. Company Lookup

Look up the company by ticker using discover_companies. Capture:

• company_id
• latest_calendar_quarter — anchor for all period calculations below (see ../data-access.md Section 1.5)
• latest_fiscal_quarter
• Firm name for report attribution (default: "Daloopa") — see ../data-access.md Section 4.5

2. Series Discovery & Working Capital Profile Detection

Cast a wide net to discover ALL available series for this company. Search with multiple keyword sets to maximize coverage:

• Balance sheet: "receivable", "inventory", "payable", "deferred revenue", "contract", "prepaid", "accrued", "current asset", "current liabilit"
• Cash flow: "cash flow from operations", "working capital", "depreciation", "amortization", "stock-based comp", "capital expenditure", "free cash flow"
• Income statement: "revenue", "cost of goods", "cost of revenue", "operating income", "net income"
• Business-specific: "backlog", "billing", "remaining performance obligation", "provision", "allowance", "reserve", "unearned premium", "loss ratio"

Collect all unique series IDs. Read every series name carefully. You need to understand:

• What balance sheet line items are available (receivables, inventory, payables, deferred revenue, contract assets/liabilities, prepaid expenses, accrued liabilities, etc.)
• What cash flow statement detail exists (CFO, changes in working capital components, capex, stock-based comp, D&A, etc.)
• What business-specific KPIs exist that contextualize working capital (e.g., backlog for industrials, deferred revenue for SaaS, policy reserves for insurance, loan loss provisions for banks)

Based on series availability, classify the business's working capital profile:

If the company is a hybrid or doesn't map cleanly, construct a blended framework. The profile is a guide, not a constraint.

Edge cases:

• SaaS / negative working capital businesses: Traditional CCC is misleading or meaningless. The entire framework should pivot to deferred revenue dynamics, billings analysis, and RPO trends. Working capital is a source of cash, not a use — frame accordingly. The earnings quality analysis still applies (accruals ratio, CFO/NI) but interpret directionally opposite: declining deferred revenue growth is the red flag here, not rising receivables.
• Financial institutions: Skip CCC entirely. The balance sheet IS the product. Focus the entire report on credit quality and reserve adequacy: allowance for loan losses / total loans, provision expense / net charge-offs (the "reserve build" or "reserve release"), vintage analysis if available, and the gap between provision expense booked through earnings and actual cash losses realized.
• Insurance companies: Skip CCC. Focus on loss reserve adequacy and development. Prior-year reserve development (favorable = prior reserves were adequate or over-reserved; adverse = prior reserves were insufficient). Show the trend. Connect reserve movements to reported combined ratio and operating income.
• Pre-revenue / early-stage companies: Focus on burn rate and cash runway. Working capital analysis still applies but framed as "how much cash is being consumed by the operating cycle" rather than earnings quality (since there are no meaningful earnings).
• Conglomerates / multi-segment: Use consolidated working capital data but flag if segment mix makes the consolidated CCC misleading. Note which segments are likely driving the consolidated working capital dynamics.
• Seasonal businesses: Explicitly normalize for seasonality by comparing each quarter to the same quarter prior year, not the prior sequential quarter. Call out the seasonal pattern so the reader doesn't mistake a normal seasonal build for a structural deterioration.
• Companies with large non-cash charges: SBC, amortization of intangibles, and impairments can distort the CFO/NI ratio. When calculating earnings quality metrics, provide both the unadjusted and adjusted (ex-SBC, ex-amortization) versions and explain which is more informative for this specific business.

3. Working Capital Data Pull

Calculate 10 quarters backward from latest_calendar_quarter. Pull all working capital components identified in Step 2 for those periods:

Balance sheet (all working capital components):

• Accounts receivable
• Inventory (total, and breakdown into raw materials / WIP / finished goods if available)
• Accounts payable
• Deferred revenue / contract liabilities
• Contract assets / unbilled receivables
• Prepaid expenses
• Accrued liabilities / other current liabilities
• Total current assets, total current liabilities

Income statement:

• Revenue
• COGS / cost of revenue (if applicable)
• Operating income
• Net income

Cash flow statement:

• Cash flow from operations (CFO)
• Changes in each working capital component (if available as separate line items)
• Depreciation & amortization
• Stock-based compensation
• Capital expenditures
• Free cash flow (compute as CFO - CapEx if not available directly, label "(calc.)")

Important: YTD-to-quarterly conversion. Some companies (e.g., Apple) report cash flow items on a fiscal year-to-date basis rather than quarterly. Check whether CF data appears to be YTD (values increasing monotonically through the fiscal year, then resetting). If so, convert to quarterly values by subtracting the prior quarter's YTD figure. Note this conversion in the report.

Business-specific KPIs as identified in Step 2.

Derived metrics (calculate from pulled data, label each as "(calc.)" and show formulas):

• DSO = (Accounts Receivable / Revenue) × days-in-period
• DIO = (Inventory / COGS) × days-in-period (if inventory-intensive)
• DPO = (Accounts Payable / COGS) × days-in-period
• CCC = DSO + DIO − DPO (if applicable)
• Accrual ratio = (Net Income − CFO) / Average Total Assets
• Cash conversion ratio = CFO / Net Income
• Working capital intensity = ΔNet Working Capital / ΔRevenue
• Profile-specific derived metrics (e.g., deferred revenue days for SaaS, allowance/loans for banks, reserve-to-premium for insurance)

4. Qualitative Research

Search SEC filings for context on working capital dynamics. Use profile-specific search terms:

• Inventory-intensive: Try "inventory reserves", "inventory write-down"; fallback to "excess and obsolete", "channel inventory", "sell-through"
• SaaS/subscription: Try "remaining performance obligations", "deferred revenue"; fallback to "billings", "contract liabilities", "revenue recognition"
• Services: Try "unbilled receivables", "days sales outstanding"; fallback to "allowance for doubtful accounts", "contract assets"
• Financials: Try "allowance for credit losses", "provision"; fallback to "net charge-offs", "reserve adequacy", "CECL"
• General (all profiles): Try "accounts receivable", "accounts payable"; fallback to "working capital", "cash conversion", "liquidity"

Extract management commentary on working capital trends, collection issues, inventory management, supplier terms, etc. with document citations.

5. Analysis & Report Synthesis

Section 1: Working Capital Profile (brief)

• 2-3 sentences identifying the business's working capital archetype and why it matters
• What is the "unit of working capital risk" for this business? (inventory for a manufacturer, receivables for a services firm, deferred revenue for SaaS, reserves for insurance)
• One sentence on the headline finding: is working capital a source of strength, a neutral factor, or a red flag for this company right now?

Section 2: Cash Conversion Cycle (or profile-adapted equivalent) For inventory-intensive businesses, show the full CCC decomposition:

• DSO, DIO, DPO, CCC — quarterly history (10 quarters)
• Include YoY change as sub-rows
• Highlight any quarter where a component moved more than 5 days (or equivalent threshold) — this is a flag

For non-inventory businesses, adapt the framework:

• SaaS/subscription: Show "Days Deferred Revenue Outstanding" (deferred revenue / revenue × days), billings-to-revenue ratio, and net working capital as % of revenue
• Services: DSO decomposition (billed vs. unbilled), DPO, net working capital days
• Financials: Skip CCC entirely — use provision/NCO coverage, allowance/loans, deposit mix
• Insurance: Skip CCC — use reserve development, combined ratio decomposition, cash flow from underwriting vs. reported income

Section 3: Earnings Quality Assessment This is the section that makes the report valuable for a short-seller or skeptical long. Three sub-analyses:

3a. Accruals Analysis

• Calculate the Sloan accrual ratio: (Net Income − CFO) / Average Total Assets
  • Persistent high positive accruals = low earnings quality = earnings running ahead of cash
  • Negative accruals (CFO > Net Income) = high earnings quality
• Show the quarterly trend. Is the accrual ratio rising (deteriorating) or falling (improving)?
• Decompose the accrual: which specific working capital line items are driving the gap between earnings and cash flow? Is it receivables growing faster than revenue? Inventory building? Payables shrinking? Deferred revenue decelerating?

3b. Cash Conversion Ratio

• CFO / Net Income, quarterly and trailing-twelve-month
• A healthy business should convert >80% of net income to CFO over time (adjust by business model — SaaS may be >100% due to deferred revenue; capex-heavy businesses need FCF/NI instead)
• Flag any quarter where conversion drops below 60% and explain why

3c. Revenue-to-Receivables Divergence

• Show revenue growth vs. receivables growth on the same basis (YoY)
• When receivables growth persistently exceeds revenue growth, it's a classic red flag: the company may be extending payment terms to pull forward sales, booking revenue on deteriorating credits, or facing collection issues
• Calculate the divergence spread (receivables growth − revenue growth) and show whether it's widening or narrowing

Section 4: Working Capital Intensity & Growth Drag How much incremental working capital does this business consume for each dollar of revenue growth?

• Calculate: ΔNet Working Capital / ΔRevenue for each period (the "working capital intensity ratio"). Use YoY changes (not sequential QoQ) for this ratio to avoid seasonal noise — QoQ denominators can flip sign due to seasonality, making the ratio meaningless. If computing on a TTM rolling basis, show that instead.
• Show the trend: is the business becoming more or less capital-efficient as it scales?
• Quantify the FCF impact: "In the last four quarters, working capital consumed $Xm of cash, reducing FCF by X% vs. what it would have been at stable working capital"
• For high-growth companies, this is critical: a business growing 30% with 15% working capital intensity is funding growth very differently than one growing 30% with 2% intensity
• Contextualize with capex intensity: total investment requirement = capex + working capital investment. Show both as % of revenue