Excuse me, which financial expert can tell me. How to understand working capital = total current assets-total current liabilities? thank you

Working capital is also called working capital. Working capital in a broad sense, also known as total working capital, refers to the funds invested by enterprises in current assets, including cash, marketable securities, accounts receivable, inventory and other occupied funds. Working capital in a narrow sense refers to the difference between current assets and current liabilities of an enterprise at a certain moment. Working capital refers to the net amount of current assets and current liabilities from the accounting point of view. For current assets that can be used to repay payment obligations, the difference between current liabilities with payment obligations shall be deducted. If current assets are equal to current liabilities, the funds occupied by current assets are financed by current liabilities; If current assets are greater than current liabilities, the corresponding "net current assets" shall be funded by long-term liabilities or a certain share of owners' equity. Accounting does not emphasize the relationship between current assets and current liabilities, but only reflects the solvency of enterprises with their differences. In this case, it is not conducive to the financial staff's management and understanding of working capital; From the financial point of view, working capital should be the sum of the relationship between current assets and current liabilities. The "sum" here is not the sum of the amount, but a reflection of the relationship, which is conducive to financial personnel to realize that the management of working capital should pay attention to both current assets and current liabilities. Current assets refer to assets that can be realized or used within a business cycle of one year or more. Current assets have the characteristics of short occupation time, quick turnover and easy realization. Enterprises with more current assets can reduce financial risks to a certain extent. Current assets mainly include the following items on the balance sheet: monetary funds, short-term investments, notes receivable, accounts receivable, prepaid expenses and inventory. Current liabilities refer to debts that need to be repaid within a business cycle of one year or more. Current liabilities, also known as short-term financing, have the characteristics of low cost and short repayment period, and must be carefully managed, otherwise enterprises will bear greater risks. Current liabilities mainly include the following items: short-term loans, notes payable, accounts payable, wages payable, taxes payable and unpaid profits. Current assets-current liabilities = working capital The more working capital, the smaller the risk of non-repayment. Therefore, the amount of working capital can reflect the ability to repay short-term debts. However, working capital is the difference between current assets and current liabilities, which is an absolute number. If the scale between companies varies greatly, the significance of absolute number comparison is limited. The current ratio is the ratio of current assets to current liabilities, which is a relative number, excluding the influence of different company sizes, and is more suitable for the comparison between companies and our company in different historical periods. Working capital refers to the balance of current assets minus current liabilities (short-term liabilities, etc.). ). If current assets-current liabilities > 0, the corresponding "net current assets" are funded by long-term liabilities and a certain share of investors' equity; If current assets-current liabilities = 0, all the funds occupied in current assets are current liabilities financing; If current assets-current liabilities are less than 0, the financing of current liabilities is occupied by long-term assets such as current assets and fixed assets, and the solvency is poor. The working capital formula is: working capital = current assets-current liabilities = (total assets-non-current assets)-(total assets-owner's equity-long-term liabilities) = (owner's equity+long-term liabilities)-non-current assets = long-term capital. According to this feature, it shows that liquidity can be solved by short-term financing. Non-cash working capital such as inventory, accounts receivable and short-term marketable securities is easy to be realized, which is of great significance for enterprises to meet temporary capital needs. The quantity is fluctuating. Current assets or current liabilities are easily affected by internal and external conditions, and the quantity often fluctuates greatly. 4 sources are diverse. The demand for working capital can be solved by long-term financing and short-term financing. Only short-term financing: short-term bank loans, short-term financing, commercial credit, bill discount, etc. Working capital can be used to measure the short-term solvency of a company or enterprise. The larger the amount, the more fully prepared the company or enterprise is for the payment obligation, and the better its short-term solvency. When the working capital is negative, that is, the current assets of the enterprise are less than the current liabilities, the operation of the enterprise may be interrupted at any time due to poor turnover. An enterprise's working capital is enough, which is the key to decision-making. If the value of solvency is compared with the ratio or ratio, a more meaningful conclusion may emerge. The importance of working capital management in this paragraph lies in managing the current assets and liabilities of enterprises. In order to maintain normal operation, an enterprise must have an appropriate amount of working capital. Therefore, working capital management is an important part of enterprise financial management. According to the survey, the company's financial manager spends 60% of his time on working capital management. To do a good job in working capital management, we must solve the problems of current assets and current liabilities, in other words, the following two problems: First, how much should be invested in the current assets of enterprises, that is, the management of capital utilization. It mainly includes cash management, accounts receivable management and inventory management. Second, how to finance the current assets of enterprises, that is, the management of fund raising. Including the management of short-term bank loans and commercial credit. It can be seen that the core content of working capital management is the management of fund utilization and fund raising. 1, the working capital is too large and the liquidity is strong, indicating that the asset utilization rate is not high; Excessive liquidity, on the other hand, poor liquidity, indicating that there are many problems with current assets and the potential debt repayment pressure is great. 2. Too little liquidity indicates that fixed assets investment depends on short-term loans and other liquidity financing, and may face certain operational difficulties. To maintain normal operation, an enterprise must have an appropriate amount of working capital. To manage working capital well, we must solve the problems of current assets and current liabilities. First, how much should an enterprise invest in its current assets, that is, the management of the use of funds. It mainly includes cash management, accounts receivable management and inventory management. Second, how to finance the current assets of enterprises, that is, the management of fund raising. Including the management of short-term bank loans and commercial credit. It can be seen that the core content of working capital management is the management of capital utilization and fund raising, so as to maintain a reasonable and necessary structure or proportion between them and enhance the liquidity of current assets. It is to speed up the turnover of cash, inventory and accounts receivable, minimize the excessive occupation of funds and reduce the occupation cost; It is to use commercial credit to solve the short-term liquidity difficulties of funds, and at the same time to borrow from banks at an appropriate time, and to use financial leverage to improve the return on equity capital. In order to avoid risks, many enterprises often sell on credit to realize profits and sell more products. One-sided pursuit of sales performance may ignore the management of accounts receivable, resulting in low management efficiency. For example, there is a lack of control over the cash flow and credit status of credit sales, and it is easy for the book profit to be higher than the actual funds due to the default of payment. In this regard, the financial department should strengthen the control of credit sales and pre-purchase business, formulate corresponding accounts receivable and pre-payment control systems, strengthen the management of accounts receivable, recover accounts receivable in time, reduce risks, and thus improve the efficiency of enterprise capital use. Value-added accounting profit is the result of the ratio of current income to cost. At any income level, enterprises should do a good job in controlling internal costs and expenses, make a good budget, strengthen management and reduce unnecessary expenses, so as to improve profits and increase enterprise value. To improve the efficiency of financial management, it is necessary to build a scientific forecasting system and formulate a scientific budget from the overall situation of the enterprise. Budgets include sales budget, purchasing budget, investment budget, labor budget and expense budget. These budgets enable enterprises to predict risks, get all kinds of information about funds in time, and take timely measures to prevent risks and improve efficiency. At the same time, these budgets can coordinate the work of various departments of the enterprise and improve the efficiency of internal cooperation. Moreover, under the guidance of sales, expenses and other budgets, the sales department can also have a certain understanding of the market in advance, grasp the market changes, and reduce the market risk of inventory. Improve the system and clarify the internal management responsibility system. Many enterprises think that urging payment is the business of the financial department, not the sales department. Actually, this is a wrong view. In fact, the salesperson should be mainly responsible for the collection of accounts receivable. If the salesperson is also responsible for collecting accounts receivable when providing goods on credit, then he will treat every account receivable with caution. Enterprises that establish customer credit files should set up risk controllers in the financial department, through which the credit status of suppliers and customers can be comprehensively investigated and recorded, and credit grades can be set, and different credit policies can be implemented for different levels of customers to reduce the risks of credit purchase and credit sales. Risk managers can evaluate the credit rating of customers from the following aspects: (1) review the registered capital of enterprises; Credit status of account repayment; Having a record of being fined for not paying taxes; Whether the supplier is in arrears with the payment; Comprehensive evaluation of other enterprises. The risk manager reports the situation to the general manager according to the investigation results, and then the risk manager, the finance manager, the sales manager and the general manager discuss and determine the amount of payment for each supplier and customer. If the amount of credit provided exceeds the approved amount, the salesperson must obtain special approval from the finance manager, risk manager and general manager. If it can't be approved, the salesperson can only reduce the credit scale or give up this business to control a large number of bad debts in sales and reduce risks. To strictly control the credit period, we should stipulate the collection time of accounts receivable, and write these credit terms into the contract to bind the other party in the form of a contract. If the other party fails to recover the accounts receivable within the specified time, the enterprise may take legal measures against the enterprise in arrears according to the contract and recover the payment in time. Encourage enterprises in arrears to repay within the specified time by means of credit discount. Many enterprises can't repay their debts in time because they can't get any benefits from timely repayment, and default will not have any impact. This situation leads to the inefficiency of enterprise accounts receivable recovery. In order to improve this situation, enterprises can take corresponding incentive measures and give certain credit concessions to enterprises that take the initiative to return money. Implement the examination and approval system, and implement different examination and approval levels for different credit scales and credit objects. Generally, a three-level examination and approval system can be set up. It is audited by sales manager, financial manager, risk manager and general manager at three levels. If the sales department adopts the method of credit sales, the financial department should first calculate the economic benefits and cost risks brought by credit sales, and then submit them to the general manager for review when feasible. This can improve the efficiency of decision-making and reduce the risk of enterprise management. Strengthening remedial measures Once the payment is in arrears, the financial department should ask the sales staff to step up the payment collection, and at the same time, the risk manager should reduce the credit rating of the enterprise; For serious arrears, the sales department shall order the sales staff to cancel the purchase and sale business with the enterprise. The establishment of enterprise internal control system mainly includes a series of control systems such as inventory, accounts receivable, cash, fixed assets and management expenses. Those who violate the control system will be punished. Strictly control expenses, take planned cost accounting for all kinds of expenses, and take strict control measures for all kinds of expenses that are prone to waste. For example, many enterprises' business entertainment expenses account for a large proportion of management expenses, which leads to the fact that some entertainment expenses cannot be fully deducted before tax when collecting income tax. In this regard, enterprises should require sales staff to control hospitality, and the financial department should approve appropriate hospitality standards based on monthly sales revenue. In a word, working capital management plays an important role in enterprise sales and procurement, and will have a significant impact on the realization of enterprise profit targets. Working capital management should control rather than restrict sales, and its purpose is to promote sales departments to reduce sales risks and improve profit levels. Therefore, enterprise leaders should attach importance to the management of enterprise capital operation. Getting Started Atlas More Atlas