The same as net current assets on the statement of financial position (current assets - current liabilities)
Businesses can't survive if they don't have enough working capital because they can't pay their debts when they're due
Working capital cycle
1. Buying raw materials
2. Making products
3. Selling products
Length of working capital cycle
Depends on the nature of the product (how long it takes to produce and how long it's held as stock before it's sold)
Depends on the credit periods the business gets from suppliers and gives to customers
Businesses need just enough cash to pay short-term debts, but they shouldn't have too much cash as spare cash is great at paying off debts, but lousy at earning money for the business
Factors affecting how much cash a business needs
Length of working capital cycle (longer cycle needs more cash)
Inflation (higher inflation needs more cash)
Business expansion (more cash needed to avoid overtrading)
Cash- production cost- finshed stock- sales (receivables)