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Working capital cycle

The accounting definition of working capital is:

Working capital = Current assets - current liabilities

Stock + debtors + cash
Creditors + overdrafts + short-term loans

There is, in most businesses, a significant delay between paying out for the raw materials and labour required to produce the goods or services and the receipt of cash from the sale of the goods. This means that for most businesses their working capital (their net current assets) needs to be very carefully managed.

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