What are the theories or models related to working capital management

Working capital management is a financial term that refers to the management of a company's current assets and liabilities. Before the reform and opening up, there was no systematic theoretical summary of the management of working capital in China's enterprises, and now the level of enterprise management has been significantly improved through practice. Before the reform and opening up, the planned economy that had been practiced for a long time had very rough enterprise operation and management, and the knowledge, thinking, and experience of enterprise managers were limited, and the methods and means of working capital management in domestic enterprises were very poor.

Working capital is a current asset used by an enterprise for business turnover, and working capital generally has the following characteristics:

1. Short turnaround time.

2. Non-cash working capital such as inventory, accounts receivable, short-term valuable**, etc. are easy to realize.

3. The quantity is volatile. Working capital is susceptible to internal and external conditions, and its volume often fluctuates greatly.

4. Diversity. The need for working capital can be addressed through both long-term and short-term financing.

Summary. There is a difference between working capital management and operational capabilities. Working capital management refers to the process by which a business manages its working capital to ensure that the business has sufficient capital to support its day-to-day operations and to meet its short- and long-term financial needs.

The operational capability refers to the production capacity, sales ability, management ability, R&D ability and other capabilities of the enterprise, which is the basis for the enterprise to achieve its goals. <>

There is a difference between working capital management and operational capabilities. Working capital management refers to the process of managing the flow of funds in a business to ensure that the company has sufficient funds to support its day-to-day operations and meet its short- and long-term financial needs. The operational capability refers to the production capacity, sales ability, management ability, R&D ability and other capabilities that the enterprise has, which is the basis for the enterprise to achieve its goals.

In addition, working capital management refers to how a business effectively manages its capital to meet the needs of its business activities, and how to use it to achieve maximum returns. Operational capacity refers to the operating ability of the enterprise, or the efficiency and effectiveness of the enterprise's business activities. The operational ability depends on the management ability, technical ability, market ability, financial ability, organizational ability, etc. of the enterprise.

Working capital, also known as the use of capital, and working capital in foreign countries, is the net amount of the total current assets of the joint venture minus the total current liabilities, that is, the net working capital available for the enterprise to use and turn over in the operation of the enterprise.

What are the characteristics of working capital?

Characteristics of working capital: the first diversity of working capital, the number of working capital is volatile, the turnover of working capital is short-term, and the physical form of working capital is variable and easy to realize.

What are the principles of working capital management?

Guarantee reasonable funding needs; improve the efficiency of the use of funds; Save the cost of capital use; Maintain sufficient short-term solvency.

What is a working capital management strategy?

1.Investment strategy for liquid assets: Companies must choose a liquid asset investment strategy that is consistent with their business needs and management style. Liquid asset investment strategies can be selected including: tight liquidity investment strategy, loose liquidity investment strategy.

2.Liquidity Financing Strategy: How to make permanent and volatile liquidity financing decisions determines a company's working capital financing strategy.

The financing decision analysis methods can be divided into: term matching financing strategy, conservative financing strategy and aggressive financing strategy.

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1. Working capital management strategy.

A working capital management strategy includes an investment strategy for working capital (how much working capital you need to have) and a financing strategy (how to finance the liquid assets you need).

1. Investment strategy of current assets.

1) Determinants of the level of investment on the current asset account: uncertainty of the enterprise; Risk tolerance.

2) Types of liquid asset investment strategies: austerity.

liquid asset investment strategies; Loose investment strategy of Liuzhi Yudong Assets.

2. Financing strategy for current assets.

1) Classification of current assets and funds: permanent current assets; volatile liquid assets; short-term funding; Long-term funding.

2) Classification of current asset financing strategies;

3) Selection of financing strategy.

It depends on the manager's risk orientation and is affected by the difference between short-term, medium-term and long-term liabilities of interest rates. In general, the yield curve (the relationship between interest rates and borrowing periods) slopes upwards (longer borrowing periods, higher interest rates), but sometimes the opposite is true.

Matched, conservative and aggressive financing strategies may all be appropriate at a given time, depending on the shape of the yield curve, the movement of interest rates, the unbridled rhetoric of future interest rates, and especially the risk tolerance of management.

Second, the principle of working capital management.

1. Meet reasonable capital needs.

2. Improve the efficiency of capital use.

3. Save the cost of capital use.

4. Maintain sufficient short-term solvency (the ratio of current assets to current liabilities is reasonable).

Working capital can be used to measure the short-term solvency of a company or enterprise, and the larger the amount, the better the short-term solvency of the company or business. When the working capital is negative, that is, the current assets of a business are less than the current liabilities, the operation of the enterprise may be interrupted at any time due to ineffective turnover.