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For determining how to calculate working capital requirement for a new investment, the business managers have to make forecasts of the earnings i. e. accounts receivable, inventory, as well as the expenses i. e. , accounts payable. After the projections have been made, you have to compare the actual earning and expenses with the projections.
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The same company has $80,000 in accounts payable, $40,000 in current debt, and $30,000 in accrued expenses.
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So these two things should also be taken into consideration while calculating the working capital requirement. e. , cash in bank, bank loan, other current assets Increase in accounts payable + Cash outflows i. e. , prepaid expenses, payment to suppliers, other current liabilitiesWorking Capital ManagementWorking capital management is very important to ensure that the company has enough funds to carry on with its day to day operations, smoothly. A business should not have a very long cash conversion cycle.