WORKING CAPITAL MANAGEMENT (1)

Working capital management focuses on the current assets and long term liabilities that determine the liquidity.

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Net working capital is the difference between current assets and current liabilities.

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Positive net working capital shows that the company is solvent.

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The goal of working capital management is to ensure adequate cash flow for operations.

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A company with more current assets has a low level of liquidity and therefore is low risk.

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A company that use more current liabilities will have higher level of liquidity as well as its profitability.

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Temporary current assets are assets that fluctuate with seasonal variations in a firm's business.

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Current assets consist of cash, marketable securities, notes payable and inventories.

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The longer the operating and cash cycle, the higher level of working capital required.

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A higher level of sales will require a higher level of working capital.

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