Working Capital Management

1. Working Capital Concepts

Working capital ensures sufficient liquidity for daily business operations.

  • Net Working Capital=Current Assets−Current Liabilities\text{Net Working Capital} = \text{Current Assets} - \text{Current Liabilities}

2. Cash and Receivables Management

  • Cash Management: Maintaining optimal cash balances using models like the Baumol or Miller-Orr models to balance transaction needs and opportunity costs.
  • Receivables Management: Setting credit terms and collection policies to optimize sales while limiting bad debts.