Capital management includes an assets-and-liabilities focus: a company must have enough assets so “the business can easily handle its expenses and debts without any risk to the core.”
For a goods-based business, these assets include raw materials. Managing a company’s raw material assets ensures that all necessary raw materials are present to avoid any production stoppages. Further, manufactured goods should go to market as quickly as possible to collect accounts receivable. This money can settle all accounts payable, and then, finally, any extra revenue creates a cushion for the next cycle.
However, companies rarely pay off all debts before beginning a new cycle, and an entire inventory rarely sells quickly. This is why capital managers must balance various streams of information to determine the best course of action to keep companies from collapsing under their own debt.
