Working Capital Management

A comprehensive set of vocabulary flashcards covering the components, policies, objectives, and management techniques for working capital based on the lecture notes.

Working Capital

The amount of funds a business uses for its day-to-day operations, calculated as $\text{Current Assets} - \text{Current Liabilities}$.

Current Assets

Assets used to operate the business including Cash, Accounts Receivable, Inventory, and Short-term Investments.

Current Liabilities

Short-term obligations including Accounts Payable, Short-term Loans, and Accrued Expenses.

Working Capital Management (WCM)

The management of a company's short-term assets and short-term liabilities to ensure efficient operations and financial stability.

Liquidity

The ability of a firm to meet its short-term obligations.

Profitability

The ability of a firm to generate returns; it often exists in a trade-off with liquidity.

Operational Efficiency

The execution of smooth day-to-day business activities.

Goodwill

The positive relationship maintained with suppliers and lenders through timely payments.

Permanent Working Capital

The minimum level of capital that is always needed for a company's operations.

Temporary (Variable) Working Capital

Extra capital required during periods of seasonal demand or expansion.

Conservative Policy

A strategy maintaining high current assets, resulting in low risk and lower profitability.

Aggressive Policy

A strategy maintaining low current assets, resulting in high risk and higher profitability.

Moderate Policy

A balanced approach to working capital management that seeks a middle ground between risk and return.

Cash Management

The practice of maintaining sufficient liquidity while avoiding idle cash to maximize returns.

Lockbox systems

A specific tool used in cash management to speed up the collection of funds.

Accounts Receivable Management

Managing the money owed by customers who bought on credit to balance revenue growth and collection risk.

2/10, net 30

A specific credit term meaning a $2\%$ discount is available if paid within $10$ days; otherwise, the full payment is due in $30$ days.

Aging Schedule

A document that classifies receivables by the number of days they are overdue.

Inventory Management

The process of ensuring inventory levels are sufficient to avoid stockouts and lost sales but not so excessive that they cause high storage costs or obsolescence.

Accounts Payable Management

Managing amounts owed to suppliers, often considered a source of spontaneous financing.

Spontaneous financing

A source of funding, such as accounts payable, that arises automatically from the ordinary course of business.

Excess Working Capital

A condition that results in idle funds, low returns, and wasteful spending.

Inadequate Working Capital

A condition leading to the inability to pay debts, production delays, loss of credit standing, and potential bankruptcy risk.