Working Capital Management

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Kyle Ashcraft, CPA · 2019 CPA Exam Scores · 95 FAR · 98 BEC · 91 REG · 90 AUD

Working capital shows how much cash a company has available over the next year to actually run and grow the business.

What is working capital?

Working Capital = Current Assets − Current Liabilities

It's the cushion a company has between what it can turn into cash soon and what it owes soon.

What makes up current assets and current liabilities?

Current assets typically include:

• Cash
• Marketable securities
• Accounts receivable
• Inventory
• Prepaid expenses

Current liabilities typically include accounts payable and other accrued liabilities.

Managing working capital means managing each of these accounts individually. How fast you collect receivables, how much inventory you hold, and how slowly you pay payables all move working capital in opposite directions — and each one is worth understanding on its own.

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More on managing working capital

Managing Cash: The Cash Conversion Cycle Managing Accounts Payable: Cash Discounts Managing Accounts Receivable

Kyle Ashcraft, CPA scored 90 or above on every section of the CPA exam in 2019, including a 98 on BEC. He is the founder and sole instructor of Maxwell CPA Review, a complete CPA review course covering all six sections, where he creates every lecture, textbook and study outline himself.