Liquidity & Balance Sheet Management
How does working capital affect the balance sheet?
Working capital comprises key current assets and liabilities on the balance sheet and thus directly influences a company’s balance sheet structure. Accounts receivable and inventory increase current assets, while accounts payable are classified as current liabilities. Changes in these items can affect the level of working capital, liquidity, and various balance sheet ratios. What matters is not only the amount of working capital, but also its composition and trends.