Working Capital Flashcards
What is working capital?
The capital of a business which is used in its day to day trading operations.
current assets - current liabilities
Strategies to effectively manage working capital?
Holding less inventory – try to adapt Just in time philosophy
Issue invoice promptly and put less payment time
Collect accounts receivable quickly
Chasing up payments
Increase accounts payable period
Why is working capital important for business?
You need to understand the management of working capital so that you can efficiently manage current assets and decide whether to finance the firm’s funds requirements aggressively or conservatively.
why does a firm need to make investments in working capital?
working capital management requires monitoring a companies assets and liabilities to maintain sufficient cash flow to meet its short term operating costs and short term debt obligations.
if a company has positive net working capital then it could have the potential to invest in expansion and grow the company.
