Corporate Finance
Working Capital and Corporate Liquidity
The working capital requirement converts operating lead times into capital employed. This course connects inventories, receivables, suppliers and cash forecasting to business continuity.
Course purpose
The decision examined
A profitable business can run out of cash when inventories and receivables grow before sales are collected. Reducing working capital is not automatically value creating if it causes shortages, lost customers or damaged supplier terms.
Objectives
Learning outcomes
- Calculate operating working capital.
- Translate operating days into funding needs.
- Build a dated liquidity forecast.
Concepts
Key concepts
- Working capital requirement
- DSO
- DIO
- DPO
- Cash conversion cycle
- Cash budget
Syllabus
Course structure
- Working-capital mechanics
- Growth
- Operating days
- Customers
- Inventory
- Suppliers
- Liquidity forecast
Extract
Analytical framework
Measure capital tied up in operations
Operating working capital reconciles assets funded by the company with operating resources provided by counterparties:
Working capital requirement
An increase in WCR consumes cash. The analysis should separate volume growth, price effects and deterioration in operating days.
Full course
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