Page 199 - 5.2 i. Manac Finance ITC Summarised Notes

MANAGEMENT OF WORKING CAPITAL
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Overview

• Working capital management, also known as short-term financial

management, involves management of the current assets and
current liabilities of an entity.

• A business that fails to match decisions about current assets and
current liabilities, cannot survive in the long run.

• Working capital refers to current assets and includes cash and
short-term investments, inventory and accounts receivable.

• Businesses may choose to finance their current assets through

short-term or long-term finance. Use of long-term finance may
however reduce competitiveness, as a business may have less
financial capacity for long-term growth.

• It is important to distinguish from current liabilities that result
from long-term decisions, for instance, the current portion of
long-term liabilities or short-term debt used to finance fixed

assets.

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