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How can working capital be improved?

Author:
Harold Averkamp, CPA, MBA

Definition of Working Capital

Working capital is defined as the amount by which a company’s current assets exceed its current liabilities.

How Working Capital Can be Improved

Some of the ways that working capital can be increased include:

In addition to increasing working capital, a company can improve its working capital by making certain that its current assets are converted to cash in a timely manner. For example, if a company can better manage its inventory and its accounts receivable, the company’s cash and liquidity will increase. This in turn improves the company’s working capital. Similarly, if the company can negotiate more favorable credit terms with its suppliers, the company will have the benefit of having a larger cash balance (even though the amount of working capital will not change).

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About the Author

Harold Averkamp

For the past 52 years, Harold Averkamp (CPA, MBA) has
worked as an accounting supervisor, manager, consultant, university instructor, and innovator in teaching accounting online. He is the sole author of all the materials on AccountingCoach.com.

Learn More About Harold

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