How do you model working capital in a forecast?

a days-based method per component, driven by the relevant P&L line.

• AR: % of revenue or DSO days — forecast: AR (t) = DSO × Sales (t) / 365.
• Inventory: % of COGS or DIO days — Inventory (t) = DIO × COGS (t) / 365.
• AP: % of COGS or DPO days — AP (t) = DPO × COGS (t) / 365.
• Other items typically as a % of sales or OpEx. Step by step: (a) calculate historical DSO/DIO/DPO from the last 3 years. (b) identify the trend (rising / falling / stable). (c) forecast assumption — the standard is a 3-year average as steady state, with an improvement plan if applicable. (d) flow Δ NWC per forecast year through the cash flow statement.