Working Capital Management

Working Capital is the difference between Current Assets and Current Liabilities (Balance Sheet); it’s the capital the firm has to ‘work with’ in the short-term to navigate the changing circumstances of the firm (as opposed to the capital ‘locked’ into equipment and long-term assets).

Unprofitable firms will see a decrease in working capital, equivalent to the losses suffered by the firm (leading to eventual liquidity crisis). 

Profitable firms will see an increases in working capital (cash) that can be withdrawn from business as profit, or reinvested into long-term assets to fuel growth of the business.

The following strategies ensure that a firm has adequate working capital to operate with stability in the short-term.