Working Capital Management II

What we are about to study - stock, debtors and creditors control - are all part of working capital management in the same way that a discussion of liquidity was part of working capital management.

We know that working capital is concerned with the ability of a business to be able to pay its way. The three ratios we are concerned with now are concerned with spending and saving money in the right places. Too much stock and we waste money on buying it and keeping it. Too much money loaned to our debtors and it's money we can't use for something else, such as buying machinery, paying our creditors or even investing it. Too much money in the form of creditors and we might have a problem that no one else will give us credit for anything else because they think we can't afford it, and, if we suddenly have a cash problem, we might not be able to pay our creditors.

Working capital management is concerned with the control aspects of the issues we have just mentioned.

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