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A discussion relating to working capital cycle, methods of managing working capital, working capital management in UK companies and suggestions for improvement has been presented below.
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 (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.).
Working capital forms an important part of a firm’s operations. Maintaining an ideal level of inventory ensures that the firm does not have to face the problem of material deficit in meeting its production targets. Similarly the receivables figure in the balance sheet indicates the willingness of the firm to extend goods on credit. As credit sale is risky the management must be careful in the choice of debtors.
Working capital consists of current assets like cash, inventory and current liability like creditors and short term loans. The pattern of all the above components of working capital varies with the business cycle. When there is a fall in the market demand there is a rise in the stock of finished goods. Later when this fall in demand takes the form of recession the firm lowers the stock of inventories, delays the payment of loans and accelerates the realization of receivables. This implies that with the worsening of the recession there is a decrease in the working capital. Therefore the efficient management of working
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Working Capital Management Introduction Working capital management is a complex process through which a company ensures that it maintains sufficient cash inflows in order to meet its short term debt obligations as well as operating expenses. In other words, the system of working capital management intends to establish a relationship between a firm’s current assets and current liabilities.
The study will look at the different advantages that are accrued by financial institutions in relation to their account receivables and their loan lending capacities. It will look at the financial growth and maturity of Citibank Indonesia, and the various strategies incorporated to deal with sovereign risk limits.
Lawrence Sports has two suppliers, Gartner and Murray. Gartner supplies Lawrence Sports with 70% of its materials and is therefore very important to the success of the company. Lawrence Sports is Murray's major customer comprising of 75% of sales for Murray and therefore is willing to do anything to please Lawrence Sports to keep them as a customer.
Second, the large holding of current assets, especially cash, strengths the liquidity position but also reduces overall profitability. Third, levels of fixed and current assets depend upon the expected sales, but it is only current assets which can be adjusted with sales fluctuations in the short run therefore company has greater flexibility in managing current assets.
Therefore, working capital management is a routine activity and financial manager has to pay more attention to working capital than fixed assets. This paper takes a literature review of the various issues of working capital management, about which previous studies have been done.
While holding ample amount of working capital is suitable in order to prevent the risk of illiquidity holding too much also hinders the business organization in undertaking profitable investments. Thus, the business arena has increasingly been putting emphasis on balancing working capital.
Research philosophy describes the way I think about the development of knowledge which affects the way I go about doing research. There are three types of research philosophies: positivism, Interpretivism and realism.
My research is based on mixtures of all these
rent working capital policies of the firm can be mostly considered as conservative in nature as Family Dollar employ most of its own internally generate funds to finance its working capital needs. Such practice may be healthy as the firms often attempt to save finance cost if
Furthermore, the paper shall critically analyze its cash flow statement to determine the pertaining trend of the organization and provides suggestion to sustain profitability of the company.
Analyzing the video it can be observed that the Geroge’s business is
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