Working Capital Management

Financing and management of the company's current assets.

Working capital

Current assets of a firm

Current assets

Cash flow

Direct indicator of company cash flow

Positive initial cash flow, negative thereafter.

Negative initial cash flow, positive thereafter.

Accounts receivable

Money owed for credit sales

Inventory

Raw materials, work in process, finished goods

Least liquid

Cash and assets convertible to cash within a year.

Current liabilities

Accounts payable

Amounts owed to suppliers

Accrued expenses

Generated by pending payment

Notes payable

Represents short-term debts

Like bank loans

Short-term debt due within a year.

Net working capital

Current assets minus current liabilities

Negative net working capital

Current assets are less than current liabilities

Positive net working capital

Current assets exceed current liabilities

Positive when current assets exceed current liabilities^

Change in net working capital

Difference between changes in current assets and liabilities^

According to time

Affected by sales seasonality, influencing cash and inventory levels

Liquidity and profitability

Asset liquidity and profitability (net sales - total cost)

Operating cycle

Period from cash commitment to accounts receivable recovery