Working Capital Management Definition (Simplified)

In simple words, working capital management means to take decision for bringing working capital at optimum level. Only doing this, working capital management can control working capital. If we try to explain more simple way, then we can say to optimize cash, to optimize debtor, to optimize inventory and other current assets. Not only current asset management in it but to manage current liabilities in it.

It is that science which study organisation and its different factors and determinants which affects working capital. Working capital management is effective use of liquid funds for both long term liabilities and short term liabilities. Working capital management  is useful for  sufficient cash flow in order to meet its short-term debt obligations and operating expenses.

Suppose, if any USA company need $100 billion dollars for operating his business in India annually, but if that company  does not have sufficient operating capital runs the risk of being unable to meet its fundamental financial obligations, such as rent, materials and payroll. That company has also  perpetually short of capital will operate with minimal staff and inventory, making it unable to take advantage of opportunities such as unanticipated surges in demand. So, it is necessary USA company to use working capital management for bringing new source of working capital.