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The Finance Book by Si Hussain, Stuart Warner

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24 Working capital and liquidity management

‘We cannot build an economy where corruption is the working capital.’

Muhammadu Buhari, President of Nigeria (2015–)

In a nutshell

While the medium- to long-term goal of a business is to manage profitability, the short-term goal is to manage liquidity.

Liquidity is the ability to pay expenses and debts as and when they become due. Businesses must ensure they have sufficient liquidity in the form of cash by managing their ‘working capital’.

Working capital is the difference between current assets (stock, debtors and cash) and current liabilities (creditors and bank overdrafts). Working capital management is the ability to make cash available when needed and to make the best use of surplus cash. Too ...

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