Working capital refers to the financial resources a company utilizes in its day-to-day operations. It represents the difference between a company’s current assets and current liabilities. Effective management of working capital is crucial for sustaining smooth business operations. By optimizing inventory levels, minimizing accounts receivable and maximizing accounts payable, companies can enhance their cash flow. A positive working capital position ensures that a company has sufficient funds to meet its short-term obligations and invest in growth opportunities.
Monitoring working capital ratios, cash conversion cycles, and liquidity management is essential for maintaining financial stability and flexibility. Strategic management of working capital enables businesses to maintain adequate cash reserves, manage debts, and make timely payments, thus facilitating operational efficiency and long-term sustainability.
