Working Capital Management

Working Capital Management

Working Capital Management

Working Capital Management


As soon as a firm starts operating, and especially once it starts to grow, it needs to come to a decision about how to invest funds, how much cash and inventory to maintain, how much financing to provide to customers, how to obtain the necessary funds, and how much debt to take on and in which terms--all the answers to these questions have serious consequences for a firm's cash flow and profitability.

Working Capital Managementis a hands-on look at the crucial decision of how to define and finance the operating investments of a business. Starting with an overview of the fundamental framework of corporate finance, the authors set out to define the central, and usually underestimated, role that working capital plays within this structure. They show not only how to prevent the losses that result from mishandling working capital, but also how to fully exploit the strategic potential that intelligent, expert management of working capital allows. The book is the first to emphasize the relevance of the interplay between the investment and finance aspects of working capital, by discussing all of the main components of a firm's operating expenses from both an investment and finance perspective. After focusing on the varying aspects and themes of working capital, such as inventory management, strategic accounting, trade credit, and short-term debt, the authors move on to identify the long-term implications and opportunities raised by this often overlooked aspect of corporate finance.

Lorenzo Preve and Virginia Sarria-Allende have at last provided a resource that identifies the impact of day-to-day business decisions, uncovering an essential yet often overlooked aspect of all firms' financial situations.


The importance of working capital management became clear to us several years ago. There were two main reasons for this fact. First, we live, do research, teach, and work with firms in an emerging market, in which a sound working capital management can explain the difference between a financially distressed and a profitable firm. Second, we have been fortunate to have a great team of colleagues in the finance department at IAE Business School who have been thinking about and discussing these issues with us for a while. Javier García Sanchez, José Luis Gomez Lopez Egea, Guillermo Fraile, Gabriel Noussan, Florencia Paolini and Martín Pérez de Solay have contributed a great deal in shaping the ideas that eventually made their way to the pages of this book.

Several professors throughout our formal finance education shaped the way we think about corporate finance, and part of their contribution can probably be traced in the pages that follow.

A considerable number of MBA students and executives have been exposed, along the past several years, to the discussion in this book. The interaction with them, their interest and passion, and their real-life examples and cases surely helped us to refine and redefine the ideas that we present in this book. We are indebted to them all.

Finally, we would like to thank our families for supporting us unconditionally.

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