Introduction to Working Capital Management

A significant amount of management time in many businesses, particularly small businesses, is devoted to assuring that there will be sufficient cash to pay employees, vendors, and creditors. While the expression “Cash is King” has some truth, a solid understanding of the inter-relationships between working capital components is necessary for all businesses to succeed in the long run.

Working capital is the current assets used in a business, which are typically financed by current liabilities. While the time frame for current assets and current liabilities is typically one year, working capital management has long-term implications for many firms.

Working capital management focuses on two basic questions: (1) What is the appropriate level of current assets for a firm to carry, both in total and for each specific group, and (2) how should current assets be financed.

The course is made up of 8 modules that examine working capital management at a macro and micro level. Starting with a discussion of a firm’s appetite for risk and the implications of having too much and too little working capital, the course then explores issues related to managing types of current assets, including cash, marketable securities, receivables, and inventory. The types of short-term credit to finance current assets is then covered, followed by a discussion of the costs of short-term credit.

The course content covers working capital management topics tested in the Certified Management Accountant (CMA) Part 2 examination.

Topics include:

• Working capital risks and strategies.
• Cash management.
• Cash forecasts.
• Marketable securities.
• Receivables management.
• Inventory management.
• Short-term credit.
• Costs of short-term credit.

Course Key Concepts: Working capital, current assets, current liabilities, working capital management, liquidity, risk appetite, opportunity cost, maturity matching, working capital strategy, working capital forecast, cash management, disbursement float, marketable securities, treasury bills, repurchase agreements, bankers’ acceptances, commercial paper, credit policy, default risk, factoring receivables, factoring receivables “with recourse”, factoring receivables “without recourse”, lead time, safety stock, re-order point, economic order quantity (EOQ), just in time (JIT), collateral, trade credit, short-term loans, line of credit, simple interest, commitment fee, compensating balances, trade discounts.