ABSTRACT
Working capital is an integral part of the Return on investment (ROI) calculation. To acquire working assets requires the establishment of short-term obligations referred to as current liabilities. As indicated, current assets are anticipated to be converted into cash within the current operating year. In addition to cash, it includes marketable securities, accounts receivable, and inventories. The company has liquid funds of $12,000, and the difference of $16,500 must be generated from collections of accounts receivable, selling inventories for cash, or both. Since the exact timing of these activities is not always feasible, it is important to manage working capital components so that adequate cash is available to meet current obligations. To manage working capital effectively, a series of key ratios can be developed. These ratios will put into perspective the relationship of working capital to the ROI performance of the company.
