A profitable company can go bankrupt. The phrase sounds paradoxical, but it happens regularly — usually because the company couldn't pay bills when they were due. Profitable on paper, broke in cash.

Liquidity analysis is the discipline of asking, before you invest, whether the company can cover its short-term obligations. The math is simple, and the gap between investors who do this work and those who don't is unforgiving. Working capital = Current Assets − Current Liabilities.

It's the cushion the business has to absorb a slow customer-payment month, an unexpected expense, a sudden inventory build. Most healthy businesses run positive working capital. The exceptions — Amazon, Walmart, Costco — are powerful enough to collect cash from customers BEFORE paying suppliers, effectively getting free financing from their supplier base.

That's a sign of pricing and bargaining power, not a flag.