Title: Working Capital Management: Components & Approaches
Headings: Working Capital Management
Working Capital Management
What is Working Capital Management?
Formula for Working Capital: “Current Assets – Current Liabilities”
Illustration to calculate working capital:
Components of the balance sheet: (Rs)
Factors effecting working capital:
Working capital Approaches:
Classification of Working Capital:
Working Capital in adequate amount:
Working capital cycle:
Working Capital Management:
Components associated with WCM:
A) Cash and Cash equivalents:
B) Management of inventories:
For better stock/inventory control:
C) Management of receivables:
Effectively managing accounts receivables:
D) Management of accounts payable:
Factors to consider:
Time and money concept in Working Capital:

Content: The two major components of Working Capital are Current Assets and Current Liabilities. One of the major aspects of an effective working capital management is to have regular analysis of the company’s currents assets and liabilities. This helps to take into account unforeseen events such as changes in the market conditions and competitor activities. Furthermore, steps taken to increase sales income and collecting accounts receivable also improves a company’s working capital. Working Capital in adequate amount: For every business entity adequate amount of working capital is required to run the operations. It needs to be seen that there is neither excess nor shortage of working capital. Both excess, as well as a shortage of working capital situations, are bad for any business. However, out of the two, inadequacy or shortage of working capital is more dangerous from the point of view of the company operations. Inadequate working capital has its disadvantages where the company is not capable to pay off its short term liabilities in time, difficulty in exploring favorable market situations, day to day liquidity worsens and ROA and ROI fall sharply.