Working Capital Management — Microsoft Excel
In this article, we will walk you through the fantastic journey of learning working capital management in accounting and finance and along with that we also discussing how we interpret in business. Working capital is the primary fuel for a business. The mismanagement of the working capital can lead to the solvency of a business and we will also go through the types of working capital.
What is Working Capital Management
Working capital is equal to current assets minus current liabilities. It is the money used to cover day to day expenses operating expenses, short term debts and obligations and inventory expenses. The current ratio is also known as working capital ratio refer to section C, Financial
ratios for better understanding. If the current ratio is less than one, it is the alarming sign for the business. Working capital management is a crucial business strategy that involves managing
a company’s current assets and liabilities in a manner that maximizes revenue and minimizes operating costs. By effectively managing their working capital,
companies can ensure that they have sufficient funds to meet their short term obligations while also investing in long-term growth opportunities. This involves
carefully balancing factors such as inventory management, accounts receivable and accounts payable to optimize cash flow and minimize financing costs. Ultimately,
successful working capital management can help companies to achieve sustainable growth and maintain their competitive edge in the market. As accounting and finance professionals, we need to ensure low working capital
requirement to achieve a smooth working capital cycle or operating cycle, which is the minimum period required to convert the net current assets and current liabilities to cash. It is also known as the cash conversion cycle. We will discuss the cash conversion cycle in detail later in this section.
Conclusion
Finally, we will understanding working capital management concepts in financial approach. Working capital is an essential part of a business and most companies fail in the long run due to its mismanagement. When companies focus only on long term plans, solvency is a huge risk.
we, as accounting and finance professionals should be aware of working capital management. An accounting and financial professional can take companies to its highs or lead it to its lows only through the management of its working capital.
