Description
Working capital management is the management of all aspects of both current assets and current liabilities, to minimize the risk of insolvency while maximizing the return on assets.
Working Capital Management 1
CHAPTER ONE
Working Capital Management 2
Introduction
1.1.Working Capital Management
Working capital is the capital available for conducting the day-to-day operations of an
organization; normally the excess of current assets over current liabilities. Working capital
management is the management of all aspects of both current assets and current liabilities, to
minimize the risk of insolvency while maximizing the return on assets.
1.2. Concepts of Working Capital
1. Gross Working Capital (GWC)
GWC refers to the firm’s total investment in current assets.
Current assets (CA) are the assets, which can be converted into cash within an accounting
year (or operating cycle), and include cash, short-term securities, debtors,
(Accounts receivable or book debts) bills receivable and stock (inventory).
Gross working capital focuses on
a. Optimization of investment in current
b. Financing of current assets
2. Net Working Capital (NWC)
Net working capital is the difference between the current assets and current liabilities.
Current liabilities (CL) are those claims of outsiders, which are expected to mature for
payment within an accounting year, and include creditors (accounts payable), bills payable,
and outstanding expenses.
Net working capital can be positive or negative. When current assets exceed current
liabilities net working capital is positive and vice versa.
Positive NWC =CA >CL
Negative NWC =CA
Working capital management is the management of all aspects of both current assets and current liabilities, to minimize the risk of insolvency while maximizing the return on assets.
Working Capital Management 1
CHAPTER ONE
Working Capital Management 2
Introduction
1.1.Working Capital Management
Working capital is the capital available for conducting the day-to-day operations of an
organization; normally the excess of current assets over current liabilities. Working capital
management is the management of all aspects of both current assets and current liabilities, to
minimize the risk of insolvency while maximizing the return on assets.
1.2. Concepts of Working Capital
1. Gross Working Capital (GWC)
GWC refers to the firm’s total investment in current assets.
Current assets (CA) are the assets, which can be converted into cash within an accounting
year (or operating cycle), and include cash, short-term securities, debtors,
(Accounts receivable or book debts) bills receivable and stock (inventory).
Gross working capital focuses on
a. Optimization of investment in current
b. Financing of current assets
2. Net Working Capital (NWC)
Net working capital is the difference between the current assets and current liabilities.
Current liabilities (CL) are those claims of outsiders, which are expected to mature for
payment within an accounting year, and include creditors (accounts payable), bills payable,
and outstanding expenses.
Net working capital can be positive or negative. When current assets exceed current
liabilities net working capital is positive and vice versa.
Positive NWC =CA >CL
Negative NWC =CA