Working Capital Management 

What is working capital management:

Working capital management refers to a company's managerial accounting strategy designed to monitor and utilize the two components of working capital, current assets and current liabilities, to ensure the most financially efficient operation of the company. The primary purpose of working capital management is to make sure the company always maintains sufficient cash flow to meet its short-term operating costs and short-term debt obligations.

Working capital management commonly involves monitoring cash flow, assets and liabilities through ratio analysis of key elements of operating expenses, including the working capital ratio, collection ratio and the inventory turnover ratio. Efficient working capital management helps with a company's smooth financial operation, and can also help to improve the company's earnings and profitability. Management of working capital includes inventory management and management of accounts receivables and accounts payables.

The Working Capital Formula is : 

Working capital = Current assets - current liabilities 

The working capital formula tells us the short-term, liquid assets remaining after short-term liabilities have been paid off.  It is a measure of a company’s short-term liquidity and important for performing financial analysis, financial modeling, and managing cash flow.