Cash For Growth: The Neglected Power Of Working-Capital Management
Source: Boston Consulting Group
Working capital - that is current assets minus current liabilities - has always been an important measure of a company's liquidity and its ability to support day-to-day operations. But too much working capital usually means that too much money is tied up in accounts receivable and inventory. Typically the knee-jerk reaction to this problem is to apply the "Big squeeze" by aggressively collecting receivables, ruthlessly suppressing payments to suppliers, and cutting inventory across the board. But that attacks only the symptoms of working-capital issues, not the root causes.