Working capital and international financial management

Working capital is the money tied up in day-to-day operations: current assets (stock, debtors, cash) minus current liabilities (creditors, short-term loans). Gross working capital is total current assets; net working capital is current assets minus current liabilities. Managing it is a balancing act: too little and the firm cannot pay wages or suppliers; too much and money sits idle in stock and unpaid bills, earning nothing. Worked example: a firm holds stock for 40 days, collects from debtors in 30 days, and pays creditors in 20 days — its operating cycle is 40 + 30 - 20 = 50 days, meaning cash is tied up for 50 days from paying for inputs to collecting from customers. Shortening any leg of that cycle frees cash.