Working capital management principles

Enterprises should follow the following principles in working capital management:

(A) to ensure a reasonable demand for funds

The management of working capital must take meeting the normal and reasonable capital demand as the primary task.

(B) improve the efficiency of the use of funds

(C) save the cost of using funds

(4) Maintain sufficient short-term solvency.

From the accounting point of view, working capital refers to the net amount of current assets and current liabilities. At the same time, enterprises must abide by the above four principles when managing working capital. Working capital refers to the balance of current assets MINUS current liabilities (short-term liabilities, etc.). ).

Extended data

Relationship between working capital and cash flow

1, current assets increase (+), cash flow decreases (-).

The increase of inventory leads to the decrease of cash flow, such as buying inventory and spending cash.

2. When the current assets decrease (-), the cash flow increases (+).

When accounts receivable decrease, cash increases.

3. When current liabilities increase (+), cash flow increases (+).

The increase in accounts payable means adding more cash expenses back to profits, which is cash inflow.

4. When current liabilities decrease (-), cash flow decreases (-).

The decrease in accounts payable proved that it was paid in cash, resulting in a decrease in cash flow.

5. Integrate the above four changes into changes in net assets.

Because assets and liabilities = net assets, the above can be integrated, which is the concept of working capital. That is, when the working capital rises year by year, it reflects the outflow of cash, and vice versa. This example is the inflow of cash.

Baidu encyclopedia-working capital