what is working capital management 
working capital management is a business strategy designed to manage a company s working capital a company s working capital refers to the capital it has left over after accounting for its current liabilities working capital management ensures that a company operates efficiently by monitoring and using its current assets and liabilities to their most effective use the efficiency of working capital management can be quantified using ratio analysis investopedia sydney saporitounderstanding working capital managementworking capital is a key metric used to measure a company s short term financial health and well being it is the difference between a company s current assets and current liabilities as such it is the capital that is left after accounting for its current liabilities working capital management is a strategy that companies use to manage their leftover cash current assets include anything that can be easily converted into cash within 12 months these are the company s highly liquid assets some current assets include cash accounts receivable ar inventory and short term investments current liabilities are any obligations due within the following 12 months these include accruals for operating expenses and current portions of long term debt payments 1the primary purpose of working capital management is to enable the company to maintain sufficient cash flow to meet its short term operating costs and short term debt obligations a company s working capital is made up of its current assets minus its current liabilities 1working capital management monitors cash flow current assets and current liabilities using ratio analysis such as working capital ratio collection ratio and inventory turnover ratio 2working capital management componentscertain balance sheet accounts are more important when considering working capital management though working capital often entails comparing all current assets to current liabilities there are a few accounts that are more critical to track the core of working capital management is tracking cash and cash needs this involves managing the company s cash flow by forecasting needs monitoring cash balances and optimizing cash flows inflows and outflows to ensure that the company has enough cash to meet its obligations because cash is always considered a current asset all accounts should be considered however companies should be mindful of restricted or time bound deposits to manage capital companies must be mindful of their receivables this is especially important in the short term as they wait for credit sales to be completed this involves at the end of the day having completed a sale does not matter if the company is unable to collect payment on the sale account payables refers to one aspect of working capital management that companies can take advantage of that they often have greater control over while other aspects of working capital management may be uncontrollable such as selling goods or collecting receivables companies often have a say in how they pay suppliers what the credit terms are and when cash outlays are made companies primarily consider inventory during working capital management as it may be the most risky aspect of managing capital when inventory is sold a company must go to the market and rely on consumer preferences to convert inventory to cash if this cannot be completed quickly the company may be forced to have its short term resources stuck in an illiquid position alternatively the company may be able to quickly sell the inventory but only with a steep price discount types of working capitalin its simplest form working capital is the difference between current assets and current liabilities however different types of working capital may be important to a company to best understand its short term needs 