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Define Working Capital

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How would you define working capital? What could happen if an organization neglected to manage its working capital? What working capital techniques would you recommend for your organization? Why?

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Solution Summary

This responses discusses the concept of working capital and its importance in an organization. It also suggests working capital techniques that can be implemented.

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Working capital is the firm's total current assets used in operations. Net Working Capital means the difference between current assets and current liabilities, and therefore, represents that position of current assets, which the firm has to finance either from long-term funds or bank borrowings (Pandey, I.M.)

Working capital = total current assets

These current assets include cash, marketable securities, prepaid expenses, accounts receivable, inventory, and other current assets. Working capital represents the liquid portion of the firm.

Use of working capital
Working capital provides the resources for the day to day operations of the firm.
Without cash, the firm cannot pay its bills. Without receivables, the company would have difficulty selling merchandise. ...

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