August 2020
Beginner
114 pages
2h 18m
English
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CHAPTER 5
Working Capital Management
Concept
Working capital is the cash needed to finance the day-to-day operations of the business and to
- Pay suppliers for goods and services
- Pay employees
- Pay for inventory and work in progress (WIP)
- Allow customers to buy now, but pay later
- Pay other creditors i.e., taxes to Her Majesty’s Revenue and Customs (HMRC) and dividends to shareholders
The working capital cycle or cash cycle is measured in days. It is calculated in three parts:
- Receivables (or debtors) days—this is the average number of days credit is given to customers and is calculated by dividing the period-end value for trade debtors (i.e., the cash due to be received from customers at the period end date) from the balance sheet by the revenue ...
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