Working capital management includes managing a company’s short-term financial resources, such as cash, accounts receivable, and inventory. It involves making sure that a company has sufficient liquidity to meet its day-to-day financial obligations and support its operations.
Some specific activities that fall under the umbrella of working capital management include:
Managing cash flow: Ensuring that a company has sufficient cash on hand to meet its short-term financial obligations, such as payroll, rent, and taxes.
Managing accounts receivable: Ensuring that a company’s customers pay their invoices on time and that the company has a process in place for collecting outstanding payments.
Managing inventory: Ensuring that a company has the right amount of inventory on hand to meet customer demand without tying up too much cash.
Managing debt: Ensuring that a company has a healthy debt-to-equity ratio and that it is able to make its debt payments on time.
Managing working capital ratios: Analyzing key financial ratios, such as the current ratio and the quick ratio, to assess a company’s liquidity and financial health.