What is working capital management?
Working capital is a business accounting term referring to liquid assets that is immediately accessible to the Company. Working capital is the practice of investigating and planning the assets of the company, debt and incoming cash flows to ensure that the organization has enough capital for operation. Working capital is necessary for everything from wages to purchase. The management of this money is divided into four different areas: cash management, inventory management, debtors' administration and short -term financing.
One of the main challenges in the field of working capital management is to ensure that there are enough liquid assets to satisfy regularly planned financial needs. This money is used to buy more goods, repayment of debts and fulfill normal wages. Managers also have to reserve money for any extraordinary events concerning society such as repairs or litigation.
The basic equation for calculating the company's working capital is quite simpleIt is the basis for working capital management. The purpose of determining working capital must only deduct the current obligations of the organization from its current assets. The resulting number will provide an idea of how much liquid money is not bound by property, stocks and other investments.
working capital management involves viewing these numbers and their use to plan the short -term future of the company. This usually means ensuring that there is cash for the next season, but also makes sure these numbers are reversible. This means that these financial plans can be reorganized or removed unless there is enough capital.
In order to plan properly for the next fiscal year, the management of working capital is divided into areas of cash management, inventory management, debtors' administration and short -term financing. Cash Management simply is a managerial accounting strategy constantlyMonitozis to the company's cash state because the money comes and comes out daily. Inventory management includes the application of technicians to increase efficiency in production to reduce overhead costs, such as a shoemaker that orders a bulk of laces to get discounted rates, and then store laces for future shoes. The administration of debtors involves identifying the relevant credit policies that will attract customers and ensure regular income from payments. Short -term financing is the ability to search for bank loans that can bridge a financial gap for a short time and can be repaired quickly.