MANAGEMENT OF

WORKING
CAPITAL
Presented by:
Ligaya, Lesbeth Grace P.
Madria, Krieza Pearl L.

ARTRETRO
Capital
• A business total assets.
• The entire amount
contributed to the
company and all
invested mone.
Working Capital
Management

• a business strategy designed to ensure that

a company operates efficiently by
monitoring and using its current assets and
liabilities to their most effective use.
• Working capital management involves
tracking various ratios, including the
working capital ratio, the collection
ratio, and the inventory ratio.
• The 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.
Current Assets
• a balance sheet line item listed under the
Assets section, which accounts for all
company-owned assets that can be
converted to cash within one year.
Current Liabilities

• are a company’s short-term financial obligations that

are due within one year or within a normal operating
cycle. An operating cycle, also referred to as the cash
conversion cycle, is the time it takes a company to
purchase inventory and convert it to cash from sales.
Main components of Working
Capital Management

• Cash
• Receivables
• Payables
• Inventory
 Cash
• Monitoring cash and cash needs is the foundation of
working capital management. In order to make sure
that the business has enough cash on hand to pay its
debts, controlling the company's cash flow entails
anticipating demands, keeping an eye on cash
balances, and optimizing cash inflows and outflows.
 Receivables
• In order to manage capital, businesses need to be aware of
their receipts. While they wait for credit sales to be
completed, this is particularly crucial in the short term. This
entails overseeing the credit policies of the business, keeping
an eye on client payments, and enhancing collection
procedures. In the end, it makes no difference if a sale is
completed and the business is unable to get money for it.
 Payables

• One working capital management strategy that businesses can use

and frequently have more control over is accounts payable. While a
firm may not be able to control other areas of working capital
management, such as selling goods or collecting receivables, they
frequently do have control over how much they pay suppliers, the
terms of credit, and when cash outlays occur.
 Inventory
• Since inventory management is potentially the riskiest component of
capital management, businesses prioritize it when managing working
capital. In order to turn inventory into cash when it is sold, a business
must go to the market and depend on customer choices. The corporation
might be compelled to have short-term resources stranded in an illiquid
position if this cannot be finished in a timely manner. On the other hand,
the inventory might be sold rapidly by the corporation, but only if a
significant price reduction is made.
 Working Capital

• Gives information about how various

important accounts are operating and is
calculated as current assets less current
liabilities.
 Types of Working Capital
• Permanent Working Capital
• Regular Working Capital
• Reserve Working Capital
• Fluctuating Working Capital
• Gross Working Capital
• Net Working Capital
Permanent Working Capital
• the minimum amount of short-
term resources vital to
operations.
Regular Working Capital
• is the part of the permanent
working capital that is actually
required for day-to-day
operations
Reserve Working Capital
• Companies may require an
additional amount of working capital
on hand for emergencies,
seasonality, or unpredictable events.
Fluctuating Working
Capital
• Companies may be interested in
only knowing what their variable
working capital is.
Gross Working
Capital
• simply the total amount of
current assets of a business
before considering any short-
term liabilities.
Net Working Capital
• the difference between current
assets and current liabilities.
 Liquidity
Management

Accounts Receivable
Management

Working Capital Inventory

Management Management

Accounts Payable
Management

Short- Term Debt

Management
 Liquidity Management

Properly managing liquidity ensures that the

company possesses enough cash resources for its
ordinary business needs and unexpected needs of
a reasonable amount. It’s also important because
it affects a company’s creditworthiness, which
can contribute to determining a business’s
success or failure.
 Accounts Receivable Management

A company should grant its customers the proper

flexibility or level of commercial credit while
making sure that the right amounts of cash flow in
via operations.
 Inventory management

Aims to make sure that the company keeps

an adequate level of inventory to deal with
ordinary operations and fluctuations in
demand without investing too much capital
in the asset.
 Accounts Payable

Arises from trade credit granted by a

company’s suppliers, mostly as part of the
normal operations. The right balance
between early payments and commercial
debt should be achieved.
 Short Term Debt

Like liquidity management, managing short-

term financing should also focus on making
sure that the company possesses enough
liquidity to finance short-term operations
without taking on excessive risk.
• The objectives of working capital
management, in addition to ensuring that
the company has enough cash to cover its
expenses and debt, are minimizing the cost
of money spent on working capital, and
maximizing the return on asset investments.
• Working capital management is at the core of
operating a business. Without sufficient capital on
hand, a company is unable to pay its bill, process
payroll, or invest in growth. Companies can better
understanding their working capital structure by
analyzing liquidity ratios and ensuring its short-
term cash needs are always met.
REFERENCE:
Team, C. (2023, October 4). Working Capital Management. Corporate
Finance Institute.
https://corporatefinanceinstitute.com/resources/accounting/working-capit
al-management/

Tuovila, A. (2023, August 20). Working Capital Management explained:

How it works. Investopedia.