Finance function is a core function in any organization. I financial management is that managerial activity which is concerned with planning and counseling of firm's financial resources. One such area of financial management is "Working Capital" and management of this is known as "Working Capital Management". In practice, a firm has to employ short-term assets and short run sources of financing. The management of such assets, and short run sources of financing. The management of such assets, described as working capital management or current assets as working capital management is current assets management is one of the most important aspects of overall financial management. Technically the management is an integral part of the overall financial management. To that extent it is similar to the long-term decision making process because both entail an analysis of the effects of the risk and profitability.
The management is concerned with the problems that arise in attempting to manage current assets, the current liabilities and the interrelationship that exist between them. The term current assets refer to those assets, which in ordinary course of business can be, or will be turned into cash within one year without undergoing a diminution in value and without disrupting the operations of the firm. CL are those liabilities which are intended at their inception to the paid inn ordinary course of business, within a year, out of CA's or earnings of the owner.
The goal of working capital management is to manage firm's current assets and current liabilities in such a way that a satisfactory level of working capital is maintained. This is so because if the firm cannot maintain a satisfactory level of working capital, it is likely to become insolvent.
[...] Working Capital Management To understand Working Capital Management the first requirement is to understand net working capital. The term working Capital” is associated with short-term financial decision-making. It is the difference between current assets and current liabilities. That is why often short- term financial management is called Working Capital Management. Short-term financial decisions typically involve cash inflows and outflows that occur within a year or less. These decisions are usually involved when a firm orders raw materials, pay in cash, and anticipates selling finished goods in one year for cash. [...]
[...] Importance of Working Capital : Management of working capital is an essential task of financial manager. His/ her responsibility is to ensure that the amount of working capital with his/her concern is neither too large nor too small for its near future requirements. A huge amount of working capital would that company has idle funds that result in overcapitalization. Over capitalization implies that a company has too large funds for its requirements including operating requirements and risk management, resulting in a low rate of return. [...]
[...] The goal of working capital management is to manage firm's current assets and current liabilities in such a way that a satisfactory level of working capital is maintained. This is so because if the firm cannot maintain a satisfactory level of working capital, it is likely to become insolvent REASONS FOR CHOOSING THIS TOPIC Ask five companies how to forecast cash, and you will get different answers. Many companies do not forecast cash at all. But better technology, changes in commerce and tightening credit policies are spurring more corporations to produce reliable forecast. [...]
[...] Profits should be ignored while including working capital requirement as funds provided by profits may or may not be used as working capital Stock and debtors should be taken at cost unless otherwise required in a given question For a manufacturing concern Statement of working capital requirements Amount (Rs.) Current Assets : Stock of raw material ( for month's consumption) Work-in-process ( for months): Raw material Direct Labor Overhands Stock of finished goods ( for months sales) Raw material Direct Labor Overhands Sundry debtors or receivable (for .month's sale) Raw material Direct Labor Overhands Payment in advance ( if any) Balance of cash ( required to meet day-to-day) Any other ( if any) Less : Current Liabilities : Creditors ( for . [...]
[...] Management of inventory Inventories often constitute a major element of the total working capital and hence it has been correctly observed, “good inventory management is good financial management”. Inventory management covers a large number of issues including fixation of minimum and maximum levels; determining the size of the inventory to be carried; deciding about the issue price policy; setting up receipt and inspection procedure; determining the economic order quantity; providing proper storage facilities, keeping check on obsolescence and setting up effective information system with regard to the inventories. [...]
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