Financial Management: Working Capital Management

Front

What is working capital?

Back

Working capital assesses a company’s ability to pay its current liabilities with its current assets, indicating the company’s short-term financial health and operational efficiency.

Front

What is net working capital?

Back

Net working capital is defined as the difference between the company’s current assets and current liabilities.

Front

What does a positive net working capital indicate?

Back

A positive net working capital indicates that the company is able to pay its current liabilities and reduce the risk of insolvency.

Front

What is net operating working capital?

Back

Net operating working capital measures a company’s ability to pay off all of its working liabilities with its operational assets.

Front

What is working capital management?

Back

Working capital management refers to the set of activities performed by a company to ensure it has enough resources for day-to-day operating expenses while keeping resources invested in a productive way.

Front

List the importance of working capital management.

Back

1. Improve credit profile and solvency 2. Increase business value 3. Favorable financing conditions 4. Competitive advantage

Front

What are the types of current assets?

Back

1. Temporary current assets 2. Permanent current assets

Front

What are permanent current assets?

Back

Permanent current assets are the minimum level of current assets which the company needs to operate.

Front

What are temporary current assets?

Back

Temporary current assets are current assets that fluctuate over time and are expected to be consumed or sold within a year.

Front

What is a restricted working capital policy?

Back

In a restricted policy, the estimation of current assets for achieving targeted revenue is done aggressively without considering contingencies.