What does Working Capital Include?

Working capital means capital available with the company to meet its current and short-term obligations and to run daily operations. The difference between the current assets and current liabilities of the company is working capital. It includes the following:

1. Current Assets: Current assets are those assets that are highly liquidable. Current assets include the following,

  • Bills Receivables: Money owed to the company by customers for goods or services delivered on credit.
  • Short-Term Investments: Investments that can be quickly converted to cash within one year.
  • Prepaid Expenses: Payments that are made in advance for goods or services that are to be received in the future are prepaid expenses.
  • Cash and Cash Equivalents: Money in the form of physical currency, cash at the bank, and highly liquid investments with a short maturity period.

2. Current Liabilities: Current liabilities are short-term financial debts that a company needs to pay within one year. Current liabilities include:

  • Accounts Payable: Amounts owed by the company to suppliers and vendors for goods or services received on credit.
  • Short-Term Debt: Debt obligations with a maturity period of one year or less.
  • Accrued Liabilities: Expenses that have been incurred but not yet paid, such as accrued wages or utilities.

Cash Management : Objectives, Importance, Functions, Work, Types & Examples

Similar Reads

What is Cash Management?

Cash management refers to managing a business’s cash flow to make sure that it has enough funds to function in its daily operations. It suggests the utilisation of cash to ensure maximum liquidity and profitability. Cash management is concerned with monitoring, analyzing, and managing cash inflows, outflows, and cash balances held by the firm at a certain point by financing the deficit or investing surplus cash. Management of cash is an essential component of overall work­ing capital management since cash is the most liquid type of current asset. It is a key factor in the financial stability of an organisation....

Objectives of Cash Management

The primary goal of cash management is to maintain adequate liquidity in a firm to meet its day-to-day obligations while utilising surplus cash to give rise to returns. Other objectives of cash management are discussed below,...

Importance of Cash Management

1. Liquid Asset: Cash is the lifeblood of any business as it is needed to acquire resources, make transactions, pay off debts, etc. A business will not generate profit if the cash is held idle and on the other hand, if there is a cash deficit then it may cause an irreplaceable loss to the business. Therefore, proper management of cash flow is essential to have a profitable business....

Functions of Cash Management

Cash management plays an important role in managing the finances of businesses or individuals. As discussed above, this involves accumulating, managing, and disbursing cash to create liquidity in the business and boost profitability. The main functions of cash management are,...

How does Cash Management Work?

Cash management involves effective planning to maintain adequate cash flow and liquid assets in the company. Strategic planning contains the following,...

Examples of Cash Management

1. Efficient Invoicing: A business can implement efficient invoicing processes by using automated payment reminders to ensure timely collection from customers and offering discounts for early payments....

Types of Cash Management

1. Cash Flow from Operating Activities: Operating activity means the functions that are carried out by a business daily. The operating cash flow is represented by the cash flow statement of the company which shows how much money is being generated from regular business activities over a certain period. In simple words, it shows the cash flow from its core business activity and does not include revenue from investments and long-term expenditures....

Cash Management Strategies

1. Cash Sweep Accounts: Using cash sweep accounts to automatically transfer excess funds to interest-earning accounts maximizes returns on idle cash. A sweep account is a bank account that transfers funds that fall short of a certain threshold or surpass it, into a higher interest-earning investment option, at the end of a day....

What does Working Capital Include?

Working capital means capital available with the company to meet its current and short-term obligations and to run daily operations. The difference between the current assets and current liabilities of the company is working capital. It includes the following:...

Benefits of Cash Management

1. Capital Management: As discussed earlier, cash is the most liquid asset, therefore, it has a major role in the working capital management of the company. It involves forecasting the need and amount of funds required for maintaining smooth operations and maximising profitability....

Limitations of Cash Management

1. Opportunity Cost of Holding Cash: Holding excess cash for precautionary reasons incurs an opportunity cost, as funds could potentially be invested to generate returns. Striking the right balance between liquidity and investment opportunities is challenging....

How to Improve Cash Management?

There are many ways through which we can improve cash management. Some of them are discussed below:...

Frequently Asked Questions (FAQ)

1. Why is Cash Management Important?...