Working Capital

Management
 Working capital
• Refers to the current assets used in the operation of the
business.
• This includes:
cash, account receivables, inventories and prepaid
expenses
 Working Capital Financing Policies

• Maturity-matching working capital financing policy

• Aggressive working capital financing policy
• Conservative working capital financing policy
 Maturity-matching working capital
financing policy
• Short term requirement or permanent working capital are met with
short term financing and long-term requirement or temporary
working capital are met with long term financing.
Aggressive-Working Capital Financing
Policy
• Some of the permanent working capital requirements are financed by
short-term financing.
 Conservative Working Capital
Financing Policy
• Some of the temporary working capital requirements are finance by
long-term sources of financing.
Management of Working Capital Accounts
• Cash
1. Separating cashiering function from the recording or
accounting function.
2. Issuing official receipt for collections and summarizing
collection.
3. Depositing collections.
4. Adopting the check voucher system for payments.
 Cash budget
• Cash receipts
• Cash disbursements
• Net cash flow for the period
• Target cash balance
• Cumulative excess cash or funding requirements
 Primary and secondary reasons for
holding cash
• Primary reasons for holding cash are for transaction and
compensating balance purposes.

• Secondary reasons for holding cash are for precautionary and

speculative purposes.
 Accounts Receivables
5 C’s of credit can be used in the credit evaluation:
1. Character
2. Capacity
3. Capital
4. Collateral
5. Condition
 Inventories

• Separating custodial functions from the recording functions.

• Aging of inventories
• ABC analysis