- Table of contents
- Current content: Executive Summary
- Introduction
- NWC: Definition and Measurement
- Holistic Approach to Working Capital Management
- Managing the Three Operational Components of NWC
- Speed Up Receivables Collection
- Case Study
- Conclusion
- Making It Happen
- Notes
- View article as a single page
Executive Summary
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Working capital (also known as net working capital) is a financial metric that measures a company’s operating liquidity.
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Working capital is defined as current assets minus current liabilities. A positive position means that a company is able to support its day-to-day operations—i.e., to serve both maturing short-term debt and upcoming operational expenses.
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One of the metric’s shortcomings, however, is that current assets often cannot be liquidated in the short term. High working capital positions often indicate that there is too much money tied up in accounts receivable and inventory, rather than short-term liquidity.
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All companies should therefore focus on the tight management of working capital. Inventory, accounts receivable, and accounts payable are of specific importance since they can be influenced most directly by operational management.
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Companies that improve their working capital management are able to free up cash and thus can, for example, reduce their dependence on outside funding, or finance additional growth projects.
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If done right, working capital management generates cash for growth together with streamlined processes along the value chain and lower costs.
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