This final lesson covers the identification and mitigation of risks associated with working capital. It also addresses the performance measurement techniques and key performance indicators (KPIs) used to monitor and drive improvement in working capital management.

 

  • Risk Identification: Types of risks in working capital management include credit risk, liquidity risk, interest rate risk, and supply chain risk. Effective risk identification is the first step in managing working capital .

    • Short-Term Debt Risks: The use of business lines of credit and other short-term funding options involves managing interest rate and liquidity risks .

    • Short-Term Investment Risks: Deploying excess cash for higher yields requires meticulously managing interest rate and liquidity risks .

  • Mitigation Strategies: Strategies for managing working capital risks are covered, including:

    • Credit Analysis: To mitigate credit risk.

    • Diversification: Of suppliers and customers.

    • Hedging: Using financial instruments to protect against interest rate and currency fluctuations.

    • Comprehensive Risk Management: The course aims to help participants “identify and mitigate risks associated with working capital” .

  • Performance Metrics and KPIs: Monitoring working capital performance is essential for continuous improvement. Key Performance Indicators (KPIs) are used to drive improvement. Common KPIs include:

    • Cash Conversion Cycle (CCC)

    • Current Ratio and Quick Ratio

    • Days Sales Outstanding (DSO)

    • Days Inventory Outstanding (DIO)

    • Days Payable Outstanding (DPO)

    • Working Capital Ratio

  • Performance Improvement: The course aims to equip participants with the tools to “enhance cash flow and reduce costs while maintaining liquidity and operational stability” . It also covers how to evaluate and improve a firm’s cash flow through working capital optimisation .

 
 
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