Introduction

Working capital is an important index of the firm. According to Atrill &

McLaney (2012), We can find it by decreasing the current assets from the current
liabilities. On the other hand, the cycle of the working capital is a more deeper
index. We will check its characteristics over the next paragraphs.

Literature review
When we enlarge our liabilities and we receive our dues more fast, we can create a
good profit, as we can invest the money that we receive and get time to receive more
and more sales or services. The quality of the net can be measured in two ways:
1 The realization of profit, whether economic or financial.
2 The type of profit: whether operating or not operating.
On the other hand, we can create a good working capital when the company
maximizes the profitability of their investments. It occurs when the return that assets
(investments) generated in a given period is better than the cost of resources
allocated to financing.
Application of literature
One of the characteristics of a good cycle of working capital is the realization of
profit. We can measure it through the cash and income statement, checking the part
of economic profit that has been achieved. Moreover, in the income statement, we
can find out how much of non-operating is in the profit. A profit that has a good
quality is one that is done and it is operational.
See the summary table:
Term
Receive

The lower better

Expenses

The bigger better

Net

The lower better

Nature
The
operating
better
The
operating
better
The
operating
better

more
items
less
items
more
items

Soufani, K. (2002) cites the option of factoring to receive cash in receivables,

however, its better work with a low term of receivables and long term liabilities,
using factoring only as the last option.
Practical application
In my Secs environment we usually analyze working capital or the cycle of
working capital when we are inspecting firms that demonstrate irregularities over its
statements. Then, we need to understand how the firm operates and check items to
see if the assets/liabilities/net was not manipulated. On the other hand, as teacher, it
is very important to me, as I give lessons of management and financial accounting to
be a better professional, bringing me indirect knowledge to apply in my work.
Conclusion
As we see, the cycle of working capital is very important to the firm. Besides, with a
deeper look at this measure, we can master the quality of receivables and payables,
and the quality of the net that the firm does. Besides, as states Atrill &
McLaney (2012), optimizing levels of receivables, payables, and inventories is core to
working capital management; and seasonal variations in working capital also require
close monitoring.
Reference list:
Atrill, P. & McLaney, E. (2012) Managing working capital In: Management
accounting for decision makers. 7th ed. Harlow, England: Pearson Education Ltd.,
pp. 433-481.
Soufani, K. (2002) The decision to finance accounts receivable: the factoring
option, Managerial and Decision Economics, 23 (1), pp. 21-32, JSTOR Arts &
Sciences
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[Online]. Available
from:http://onlinelibrary.wiley.com.ezproxy.liv.ac.uk/doi/10.1002/mde.1046/pdf(Ac
cessed 29 March 2013).