Working Capital Management
CHAPTER 01
INTRODUCTION
1. Introduction of study
In the present competitive world, every firm, whether big, medium of small, needs working capital to carry on its operations and to achieve its targets. Proper management of working capital is an important role of firm’s life.
Working capital is essential to maintain the smooth running of business. No business can run successfully without an adequate amount of working capital. Inadequacy of working capital may lead the firm to insolvency and excessive working capital implies idle funds, which earns no profits for business.
Working capital management policies of a firm have a great effect on its profitability, liquidity and structural health of the firm. A well-designed and implemented working capital management is expected to contribute positively to creation of firm’s value & profitability. A firm is required to maintain a balance between liquidity and profitability while conducting its day-to day operations. Liquidity is a pre condition to ensure that firms are able to meets its short-term obligations and its continued flow can be guaranteed from a profitable venture. The importance of cash as an indicator of continuing financial health should not be surprising in view of its crucial role with in the business. This requires that business must be run profitability.
Profit maximization is generally considered important objective of a business. Profit is also used as a tool for evaluating the performance of management. Profitability directly influences the creation of surpluses. Therefore, Management of working capital is one of the most important aspects of firm’s profitability. Analyzing the financial statement of the firm helps to make proper decisions about the strengths and weakness of the firm’s operations. These statements are useful in analysis of the profitability of the company by analyzing each individual element to the total figure of the
INTRODUCTION
1. Introduction of study
In the present competitive world, every firm, whether big, medium of small, needs working capital to carry on its operations and to achieve its targets. Proper management of working capital is an important role of firm’s life.
Working capital is essential to maintain the smooth running of business. No business can run successfully without an adequate amount of working capital. Inadequacy of working capital may lead the firm to insolvency and excessive working capital implies idle funds, which earns no profits for business.
Working capital management policies of a firm have a great effect on its profitability, liquidity and structural health of the firm. A well-designed and implemented working capital management is expected to contribute positively to creation of firm’s value & profitability. A firm is required to maintain a balance between liquidity and profitability while conducting its day-to day operations. Liquidity is a pre condition to ensure that firms are able to meets its short-term obligations and its continued flow can be guaranteed from a profitable venture. The importance of cash as an indicator of continuing financial health should not be surprising in view of its crucial role with in the business. This requires that business must be run profitability.
Profit maximization is generally considered important objective of a business. Profit is also used as a tool for evaluating the performance of management. Profitability directly influences the creation of surpluses. Therefore, Management of working capital is one of the most important aspects of firm’s profitability. Analyzing the financial statement of the firm helps to make proper decisions about the strengths and weakness of the firm’s operations. These statements are useful in analysis of the profitability of the company by analyzing each individual element to the total figure of the