Managing cash and working capital

Why you should know about managing cash and working capital

Open any book on management and finance and you will come across terms like working capital and cash flow. Talk to any financial expert about financial health of a company and he would start talking about working capital and cash flow. These two examples are enough to tell you why you should know these terms and their implications if you aspire to be a manager or want to have your own business.

What is working capital?

The working capital is the capital a company needs on a day-to-day basis to finance its expenses. A company needs certain funds to run the business. Purchasing raw materials, meeting daily expenses and payment towards unforeseen events fall under this category.

Current liabilities deducted from current assets give the working capital. Working capital management ensures that a company is efficient and can manage its short term debts well.

Managing working capital means managing the inventories, cash, accounts receivables and payables.

How can a company ensure that it has sufficient working capital? By having sufficient cash flow. Thus working capital and cash flow go hand in hand to determine the short term financial health of a company.

A good working capital management system aims to have sufficient cash to meet the current requirements. However, by being liquid the company cannot reduce the profitability. So, a fine balance has to be achieved.

For successful working capital management, an entrepreneur has to make sure that the managers see these two as part of a bigger picture. There have been cases where managers considered cash flow management less important or had conflicting goals that made the company suffer.

Often in the real world we see tradeoffs between customer service, cash flow management, risk and cost. To optimize the performance of the working capital, a company needs to have strategies to manage these tradeoffs.

Why students should learn about working capital management and cash flow?

At Myland Business Institute we don’t aim to create managers but groom future entrepreneurs. We want our students to have their own business and realize their aspirations. Thus, we impart knowledge that would make them independent and confident. Our financial courses also aim to give them in-depth education on finance and how to handle it. We also teach our students the practical finances through which they can learn to use different tools and gain full knowledge about the financial state of a business. We invite you to browse our webpage and find out how we can give shape to your dreams.

For more information about the qualities of Managing cash and working capital or entire business courses in the Myland Business Institute, please, contact us.

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