Explain the term working capital. What is the primary objective of working capital management?

Explain the term working capital. What is the primary objective of working capital management?


Working capital represents the operating liquidity available to a business organization. Working capital may mean Gross Working Capital or Net Working Capital. Gross Working Capital is equal to Current Assets and Net Working Capital is equal to Current Assets less Current Liabilities.

The primary objective of working capital management is to avoid over investment or under investment in current assets, as a very large amount of funds are blocked in current assets in practical circumstances. Management of working capital ensures that sufficient cash is available to meet day to day cash requirements. Maximization of profits is another primary objective of working capital management. The management of working capital involves managing inventories, accounts receivable and payable, and cash. In other words, the goal of working capital management is to ensure that a firm is able to continue its operations and that it has sufficient ability to satisfy both maturing short-term debt and upcoming operational expenses.
What is working capital cycle?
The working capital cycle measures the amount of time that elapses between the moment when the organization…
What factors affect working capital requirement?
Factors affecting working capital requirement:…
Define a.) Fixed working capital b.) Variable working capital
a.) Fixed working capital is that portion of the total capital that is required to be maintained in the business…
Post your comment