The working capital of the business is defined as the net of current assets over current liabilities. It is an important liquidity measure of the firm. The current assets include not only cash, receivables but also inventories as it can be easily liquidated whereas the current liabilities include short term loans and creditors (the University of California, n.d.). A business with scarce working capital faces difficulty in meeting its short term obligations from the available cash resources if there is a sudden or continuous fall in sales. Therefore, it is important to maintain an optimum amount of working capital in the business and it must be carefully monitored by the managers (Nix & McFetridge, n.d.).