Working Capital Management

W O R K I N G C A P I TA L Click to add photo
M A N A G E M E N T
A I R E S H M A E P. E D R A D
In the world of
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business
LET US EXPLORE managing,
finances is crucial
to success. One
aspects of
financial
management that
deserves attention
is working capital.
SEPT. 23, 2023 WORKING CAPITAL MANAGEMENT 2
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WHY WORKING
CAPITAL IS
IMPORTANT FOR
BUSINESSES TO
EFFECTIVELY
MANAGE IT

Working
Capital
Is the diff erence between a company’s

current assets and its current liabilities.
In other words it represents the amount of
money a company has available to cover
its short-term obligations and expense.
Working
Capital
It is an important metric for assessing a
company’s Financial Health as it
provides an indication of the company’s
ability to meet its short-term obligations
and fund its day-to-day operations.
Positive
Working
Capital
A company with a positive working capital
has more current assets than current
liabilities which means it has enough
resources to meet it’s short-term
obligations without having to rely on
external financing.
Negative
Working
Capital
A company with a negative working
capital has more current liabilities
than current assets which means it
may struggle to pay its bills and fund
its operations.
Negative
Working
Capital
In this case, the company may need
to borrow money or raise Capital to
cover its short-term obligations.
Working
Capital
Manageme
nt
It is a method of balancing assets

and liabilities, in a day-to-day
operation.
Working
Capital
Manageme
nt
The way a company manages the

relationship between assets and
liabilities in the short term, debt
obligations.
Working
Capital
Manageme
nt
When managing working capital, the

company has to manage accounts
receivable, accounts payable, inventory
and cash.
Working Capital

The current assets and liabilities used to calculate
working capital typically include the following
items:
 Current assets that can be converted into cash

with a year of the balance sheet date.

The Current assets that can be converted into cash
with a year of the balance sheet date includes:
- Cash combining money in bank accounts and undeposited

checks from customers marketable securities
- Short-term investments a company intends to sell within
a year accounts receivable.

The Current assets that can be converted into cash
with a year of the balance sheet date includes:
- Prepaid expenses such as insurance

premiums
- Advance payments on future purchases etc.

The current liabilities are liabilities that are due
within a year of the balance sheet date including the
following items:
 Accounts payable
 Taxes payable

The current liabilities are liabilities that are due
within a year of the balance sheet date including the
following items:
 Interest payable that must be paid within a year

deferred revenue such as:
- Advance payments from customers for goods
or services not yet delivered and etc.
How to calculate Working Capital?

FOR EXAMPLE
A company has Php 100,000.00 of current assets and

Php 52, 000.00 of current liabilities, the company
has therefore said to have Php 48,000.00
Php 100,000.00 (Current assets)
Php 52, 000.00 ( Current liabilities)
Php 48,000.00 WORKING CAPITAL
Types of Working Capital

The types of working capital can be
categorized as follows:
1. GROSS WORKING CAPITAL

2. NETWORKING CAPITAL

GROSS WORKING CAPITAL – It represents the
company’s ability to meet its short-term
obligations

NETWORKING CAPITAL – It indicates the
company’s liquidity position after considering
its short-term obligations.

POSITIVE NETWORKING CAPITAL – It indicates
the company’s has enough current assets to
cover its current liabilities.

PERMANENT WORKING CAPITAL – It includes
the funds necessary to maintain minimum
levels of inventory accounts receivable and
cash reserves to meet day-to-day operational
requirements.

4. TEMPORARY OR VARIABLE WORKING
CAPITAL– Additional working capital needed
to meet seasonal fluctuations, unexpected
surges in demand or other temporary
requirements.

It represents the
difference between
the peak and base
levels of working
capital during
different business
cycles.

5. POSITIVE WORKING CAPITAL– Indicates
that a company has sufficient current assets
to cover its short-term obligations. It is a
favorable position as it reflects the company’s
ability to manage its day-to-day operations
and meet its financial obligations.

6. NEGATIVE WORKING CAPITAL– Occurs when
a company’s current liabilities exceed its
current assets. This situation is generally
considered unfavorable as it suggest that the
company may face difficulty in meeting its
short-term obligations.

In conclusion

Working capital is a vital aspect of
financial management that business
must prioritize. By managing working
capital, companies can ensure smooth
operations , seize growth
opportunities and enhance their
FINANCIAL HEALTH.
Working Capital Management

Let’s explore the
STRATEGIES and BEST
PRACTICES that
businesses can utilize
to effectively manage
their WORKING
CAPITAL
Working Capital Management
is a critical aspect of financial
planning and control aimed at
optimizing the utilization of
current assets and liabilities.
By implementing sound
working capital, management
techniques, businesses can
enhance cash flow improve
operational efficiently and
strengthen their overall
FINANCIAL HEALTH.
Process of Working Capital
Management

Typical Working Capital Management Process
It involves
several steps
depending on
the specific
needs and
circumstances
of a company.
Step one: ASSESS THE COMPANY’S
WORKING CAPITAL NEEDS
- This involves analyzing the
company’s current assets
liabilities, identifying any potential
shortfalls or areas of access and
forecasting future cash flows.
Step two: SETTING WORKING
CAPITAL TARGETS
- bases on the assessment of
working capital needs the
company can set working capital
targets. These targets should
reflect the company’s short-
term financial goals.
- Taking into factors such as
Cash Reserves Inventory Levels Payment Terms

With working capital
Strategies, the company can
develop strategies to
optimize its working capital.

This may involve strategies
such as reducing inventory
levels, improving cash flow
management or negotiating
better payment terms with
suppliers.
Once the working capital
strategies have been
developed, the company can
begin to implement them.

This may involve changes to
internal processes and
procedures such as improving
inventory management,
practices or negotiating new
payment terms with vendors.
Working Capital
Management is an ongoing
process and it’s important to
monitor progress regularly
and make adjustments as
needed.
This may involve tracking
cash flows inventory levels
and payment terms and then
adjusting strategies
accordingly.
By following these steps, a
company can effectively
manage its working capital
and improve its shot-term
Financial Health.
Objectives of Working Capital
Management

The primary objectives of
Working Capital Management sis
to ensure that a company has
enough working capital to fund its
day-to-day operations.
By optimizing balance sheet
between current assets and
liabilities, a company can improve
its profitability by minimizing the
amount of working capital tied up
in non-productive assets and
maximizing on invested capital.
By effectively managing working
capital, a company can reduce the
need for short-term financing
which can be more expensive than
long-term financing which can be
more expensive than long-term
financing.
This can help minimize the cost of
capital and improve the
company’s over all financial
health.

Working Capital Management can
help to minimize the risk of
financial distress by ensuring that
a company has enough cash
reserves to cover unexpected
expenses in whatever any financial
downturns.
By optimizing inventory levels,
managing accounts receivable and
accounts payable and monitoring
cash flows, a company can
improve its cash flow and reduce
the need for external financing.
THANK REFERENCES:
YOU Investopedia. (2021). "Working Capital

Management."
https://www.investopedia.com/terms/w/worki
ngcapitalmanagement.asp
Smith, J. K. (2020). Effective Working Capital

Management: Techniques and Strategies.
McGraw-Hill Education.
Gardner, J. C. (2018). Working Capital

Management.
A I R E S H M A E P. E D R A D

Working Capital Management

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W O R K I N G C A P I TA L Click to add photo

SEPT. 23, 2023 WORKING CAPITAL MANAGEMENT 3

Is the diff erence between a company’s

It is a method of balancing assets

The way a company manages the

When managing working capital, the

SEPT. 23, 2023 WORKING CAPITAL MANAGEMENT 12

 Current assets that can be converted into cash

SEPT. 23, 2023 WORKING CAPITAL MANAGEMENT 13

- Cash combining money in bank accounts and undeposited

SEPT. 23, 2023 WORKING CAPITAL MANAGEMENT 14

- Prepaid expenses such as insurance

SEPT. 23, 2023 WORKING CAPITAL MANAGEMENT 15

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 Interest payable that must be paid within a year

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A company has Php 100,000.00 of current assets and

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1. GROSS WORKING CAPITAL

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Cash Reserves Inventory Levels Payment Terms

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YOU Investopedia. (2021). "Working Capital

Smith, J. K. (2020). Effective Working Capital

Gardner, J. C. (2018). Working Capital

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