An entity manages its working capital as part of the investment decision of its financial management function. Working capital, also known as net working capital (NWC), is the difference between an entity’s current assets (e.g., cash, accounts receivable, and inventories of raw materials and finished goods) and its current liabilities (such as accounts payable and other types of debts).

The investment decision relates to both long-term investment in non-current assets and short-term investment in working capital. Management of working capital involves management of liquidity in a way to ensure that inventory is maintained at a level corresponding to actual requirements for efficient production, receivables and debts are collected on time, cash balances (idle funds) are invested at the best rates, and payables are paid and settled on a timely basis.