Working Capital Management
Overview
Working Capital is usually defined as current assets minus current liabilities. Current means an asset or liability that
is due within a year (for liabilities) or likely to be converted to cash within a year. (for assets) That is, current assets
are cash assets or assets that will be converted to cash within a year, and current liabilities are the portion of a firm's liabilities
that are due within a year.
As a general rule, the primary reason for holding current assets like cash, is to be able to pay current liabilities as they
come due, or to be able to pay for additional investments that are deemed necessary. In other words, a firm needs cash to
pay its bills, so it will want to hold a buffer of cash or assets easily converted into cash in order to meet those
obligations.
Management
