Working Capital Management (General)

Question 1

What is working capital?

Answer 1

Working capital or net working capital is the capital of a business which is used in its day-to-day trading operations. It is the difference between current assets and current liabilities.

Question 2

What are the main components of working capital?

Answer 2

The main components are cash, inventory, receivables and payables. Working capital includes the cash that is needed to run the firm on a day-to-day basis. It does not include cash that is not required to run the business.

Question 3

What are the benefits of efficient working capital management?

Answer 3

Efficient working capital management can free up resources, allowing for investment in growth opportunities and enhancing overall financial health.

Question 4

What is the cash cycle?

Answer 4

The cash cycle is the time between when cash goes out of a firm at the beginning of the production process and when it comes back in.

Question 5

What is the working capital cycle?

Answer 5

The term working capital cycle refers to the length of time between the purchase of raw materials and the inflow of funds received from the sale of goods.