The Problem Of Working Capital Management

Working capital is the key to a successful business. It is like their blood flow and the manager’s job is to help keep it flowing. Under the Generally Accepted Accounting Principles working capital is simply the difference between a company’s Current Assets, which are cash, inventory, accounts receivable and prepaid items, and Current Liabilities, accounts payable and accrued expenses.

The functions of working capital are to ensure an entity has enough working capital by turning long-term assets in services and revenue. This is done by obtaining cash from different resources (such as supplies and labor), arranging working cost, provision for credit sales and provision of a safety margin.

A business will run smoothly if the working capital is used effectively, hence the description “Working” capital. Managing this is a delicate balance and needs to be monitored regularly to make sure both debtors and creditors are on track. One of the most effective ways to manage this figure is to ensure debtors to the company pay their debts on time (or early if

Improving working capital position, a company is able to compare from year to year any increase in revenue; increase in production due to a decrease in variable or fixed costs, increase in sales due to a new sales workforce and any increase in liabilities; new short term creditors, a higher accounts payable account due to the need to purchase new materials. A company can improve its working capital by trying to keep a healthy balance between the two accounts, cutting costs, and analyzing its current short-term debt in terms of how to decrease it or find alternative ways to avoid it such as restructuring production procedures. (Schroeder, el. 2014)

2. Explain the concept of working capital. What are the factors which influence the working capital?

I chose to research working capital because I did not know the term nor the significant role it plays in operating a business. I learned that working capital is the requirements for running normal business operations on a daily basis. It is the necessary amount needed to keep the doors open and is analyzed for a period of about a year. Working capital is essential for fulfilling business operating needs. Cash that is spent is not considered working capital because it can no longer be used by the company to invest. Working capital is the cash surplus within the company used to make more money. Implementing an effective working

Deptartment of Management and Finance, Faculty of Economy and Business, University of Murcia, Murcia, Spain

Both inadequate and excessive working capital is detrimental for a business concern. The excessive working capital can result in idle funds which could be used for earning profit while the inadequate working capital will interrupt the operations and will also impairs profitability (Chowdhury and Amin, 2007).

The working capital needs of a firm are influenced by numerous factors . The important ones are

The competitive business environment in which companies develop their activity determines them to focus on strategies intended to improve their performance. This is because their performance on the market can be attributed to creating competitive advantage. This objective can be reached with different strategies, some of them based on reducing costs, others based on differentiation of companies' products and services. However, these strategies are affected by working capital of these companies. It is important to analyze how these companies manage their working capital in order to improve their performance.

2. Compensation Balance is a bank balance that a firm must maintain to compensate the bank of services rendered or for granting a loan.

The project brings out various aspects of working capital management and the means to get it financed from banks. It starts with explanation of the concept of working capital, description of working capital cycle, management and financing of working capital. This is supplemented by a brief explanation of the working capital financing of M/s Paras Organics Private Limited.

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.

GNP, NNP OF INDIA (BOTH AT MARKET PRICE AND FACTOR COST) AND CORRESPONDING DEPRICIATION (1950-2012)

GNP, NNP OF INDIA (BOTH AT MARKET PRICE AND FACTOR COST) AND CORRESPONDING DEPRICIATION (1950-2012)