How does working capital affect the credit rating?

Working capital can influence a company’s credit rating because its trends provide insights into a company’s liquidity, cash flow, capital tied up, and financial management capabilities. Efficiently managed working capital can free up liquidity and improve free cash flow. Conversely, a high level of capital tied up—or a sharp increase in it—can increase financing needs. However, rating agencies do not view working capital in isolation but rather in the context of debt, cash flow, profitability, business model, and other financial metrics.