Working capital management is concerned with the raising of and dealing with short-term resources (called current liabilities) needed by the business on a revolving basis and thereafter putting them to productive use, that is, financing acquisition of current assets. Current assets enable the profitable use the fixed assets (Plant, machinery etc.) inducted into the business and in this process to achieve the different facets of business activity planned. Working capital turns static long-term block assets into dynamic operational facilities to generate continuous cycles of productive activity like manufacturing and trading or service providing. While long term investment is raised one time initially and invested at once to procure the block asset needed to translate business goals into actuality, working capital management serves as the effective driver that enables the operative use of the block assets to ensure an uninterrupted process of business activity. This leads to revenue generation on a continuous and ongoing basis. While Investment finance is concerned with raising long term funds to be utilised in fixed assets & investments, working capital is concerned with raising current liabilities to finance current assets.

The block assets are procured on one time basis at the project erection stage, but put to repeated use over a long period in manufacturing/business activities. But the working capital assets or current assets are of floating or circulating nature (transforming or undergoing quick changes/shapes) with each single application. Thus cash/bank balance is turned into raw materials and later to stock-in-process, to finished goods, and finally to receivables. Cash/bank balance is restored when receivables are realised and this constitutes a single cycle of business turnover. The nature and type of business activity determines the number of turnover cycles in a year. In view of this working capital finance is needed on a revolving and continuously flowing basis. Variable quantum of working capital may be employed in the business at different times based on the capacity utilization of the production facility and scale of activity. The length in terms of the period involved of a turnover cycle and the amount of total business turn over in a relevant period (total production/sales) determine the quantum of current assets needed and the working capital to finance their acquisition.

Thus if a durable physical asset in a business is put to repeated use, it is a block asset. But if it changes/transforms in form or kind after a single use, it is current asset. The acquisition of each fixed asset results in the firm incurring long-term liabilities. On account of this each such asset is a burden on the firm, incurring cost and overheads, unless if it could be deployed in gainful use, generating a benefit commensurate with the cost. This is the reason that assets that are not used or used sparingly in the business activity are deemed as dead weights to the business. It is working capital that renders these assets to turn into productive and revenue generating agents. This core value of working capital can be appreciated by comparing a closed manufacturing unit, with a live and actively running unit. It is dearth of working capital that turns a unit to be closed. It is timely and adequate working capital that results in the profitable functioning of the same unit.

While tasks of securing long-term capital and its investment may need elaborate planning and involve taking strategic decisions, it is still a one-time function. On the other hand the tasks of working capital management constitute a continues and flowing stream of process. It is therefore that the financial managers need to spend a great deal of time in managing current assets and current liabilities. Arranging short term financing, choosing favourable means of securing finance amidst wide available options, day to day monitoring of bank accounts and fund-flow balancing, monitoring accounts receivables towards timely recovery, monitoring investments in inventories to enable uninterrupted production activity being carried out without undue lock-up of funds etc need constant care and attention. Efficiency of financial management and the efforts towards cost-reduction and increasing profitability can be secured more effectively through efficient working capital management. While decisions regarding long term finance and acquisition of fixed assets once made are not amenable for frequent change.