Working Capital Performance Of The Selected Rubber Corporates Essay

Working capital management is the management of short-term investment in the organization. This mainly deals with the most liquid assets of an organization. Capital structure management is a method to investigate how a firm finance its overall operations and growth by keeping its operations as profitable and risk-free as possible.

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

In order to be a great leader / manager one must understand capital cycle and how to achieve and maintain the organizations components. The working capital cycle comprises of four parts: cash, creditors, inventory, and debtors. A successful cash-flow management would mean a complete control on each of the working capital cycle parts. The shorter the working capital cycle, the faster supplies can be converted into cash; therefore, lessening the need for cash. If one component of the cycle fails, it is a domino effect on the other cycles. For instance, without careful financial and management planning, an organization will not know whether it is making the most effective use of its available resources funded and allocated through the capital financial process.

Additionally, implementations in working capital programmes are effective especially in GSK’s operations due to stable and shorter conversion days than of AZN. However, there are limitations included in interpreting its ratios: one might be that averages have not been used and another; that both companies have implemented its capital management at different periods of time; therefore, the costs of manufacturing, preparation in launches of new pipeline products and further implementations in manufacturing as well as restructuring its working capital has had its impacts in increasing cost of sales for certain periods; hence distorting its figures. This may result in uncertainty of how well a company operates over time as stability does not

Net working capital is important and beneficial to balance sheet analysis as it reflects the company’s short-term liquidity or ability to meet its financial obligations as they become due (Droms and Wright, 2010, p. 35). This is an important measure for bankers and other lenders as they decide whether or not to fund your company. An increase in net working capital is considered a negative cash flow, making it not available for equity. Net working capital is calculated by subtracting the current liabilities from the current assets. The rule of thumb for bankers and lenders is to have twice the amount of current assets over the current liabilities.

Furthermore, SAS 47 notes that those accounts that require subjective judgment in determining their value generally present an increased risk of error. In addition, those accounts that represent a large percentage of total assets generally present a greater risk of potential litigation because a small percentage error in an account with a relatively large balance can result in a material misstatement. Thus, as table 1 shows, the study wants to follow Bell et al. (1991) to control inventory intensiveness, receivable intensiveness, cash position, sales growth and sales size: Inventory intensiveness = inventory / sales; Receivable intensiveness = receivable / inventory; Cash position = cash / (sales (net) – operating income before depreciation). Cash position measures are included as indicators of the client's ability to generate adequate future cash flows. The industry- standardized measures should provide an indication of the strength of the client's current working capital or cash position (i.e., a degree of deficiency). The paper expects a positive trend in either cash-to-fund expenditures or the current ratio for survived companies to imply a tendency toward better and better future cash or working capital position.

Working capital act as a major resource in some projects situations, typically in construction projects. If the working capital is available and ready whenever it is require, it helps the project manager to assign and work on many activities sat the same time. However if the working capital I not readily available it act as a constraint for project managers.

In addition, it helps the business to maintain liquidity on everyday base operation in order to keep the business running and satisfy the business’s commitment is an important part which required in managing the capital. If the business has sufficient working capital, it may help the business well organized and make full use of credit to its consumers or debtors. The formula of working capital = current assets – current liabilities. According to the passage, last year the working capital = ₤334000 - ₤115000 = ₤219000, this year the working capital = ₤386000 - ₤167000 = ₤219000. It is clear that the working capital doesn’t change, but the figures show that the cash goes down from ₤4000 decrease to ₤2000 which means that the business owned less money than last year. Moreover, the creditors owned more money compared with last year from ₤115000 to ₤140000 which lead to the total current liabilities increased compared with last year, from ₤115000 to ₤167000 which is not good for a company, it means the business needs to pay more money out. As the passage mentioned, Kachins Garments had gradually shifted from niche market to mass market. Mass marketing has to do with selling ordinary things to very large numbers of people at quite cheap prices. Businesses can get high volume sales but at a fairly low profit margin

Another fact of working capital management was examined by Lamberson (1995) who examined how small enterprises react to fluctuations in economic activities by moving their working capital requirements and the level of current assets and liabilities. Current assay to current liabilities ratio, current assets to total assets ratio, and inventory to total assets ratio were used as a measure of working capital, however, the index of the annual average coincident economic meter was used as a measure of economic activity.

To complement regression analysis, correlation analysis will be passing out to analyze the relationship between working capital management, financial decision, investment decision, accounting information system, financial reporting analysis and financial performance. Testing of significance will be approving out for all variables using t-test at a 95% level of significance and 5% of standard error. To examine the relationship among these variables, Pearson correlation coefficients will calculate.

The relationship between Net sales and Working capital level for six months works out to be different values and since obtaining a linear relationship between both was not possible. Even the average doesn’t hold good for the above case. So the next method called regression analysis method was used where the relation between two variables was established which increases the accuracy of the estimate.

The research set out to analyse the effectiveness of working capital management systems in improving the profitability of manufacturing SMEs in Zimbabwe. The primary objective of the research was to analyse the working capital needs of SMEs,to establish whether working capital management systems have an impact on the profitability of a SMEs so as to provide a suggestion of what should be done to improve working capital management in small firms and , finding out the weaknesses in WCM systems used by SMEs. Primary data was collected and the findings indicated that there is indeed a link between working capital management and profitability of SMES. Currently SMEs manage their WC poorly and hence their poor financial performance and slow growth. As a result small firms should upgrade their investment in working capital, adopt more efficient systems so as to improve their profitability and growth through adopting the recommendations crafted in this chapter.

Working capital in an important component of financial management and basically Working Capital Management (WCM) has been approached in numerous ways. It focuses attention to the managing of the current assets, current liability and their relationships that exist between them. In other words, working capital management may be defined as the management of a firm’s liquid assets, cash, marketable securities, accounts receivable and inventories. In the present day context of rising capital cost and scarce funds, the importance of working capital needs special emphasis. It has been widely accepted that the profitability of a business concern depends upon the manner in which its working capital is managed. The inefficient

Efficient management of working Capital is one of the pre-conditions for the success of an enterprise. Efficient management of working capital means management of various components of working capital in such a way that an adequate amount of working capital is maintained for smooth running of a firm. An optimal working capital management is expected to contribute positively to the creation of firm value. To reach optimal working capital management firm manager should control the trade off between profitability and liquidity accurately. The purpose of this study is to investigate the

• Capital management - a strategy focusing on maintaining efficient levels of both components of working capital, current assets and current liabilities, in respect to each other. Capital management ensures a company has sufficient cash flow in order to meet its short-term debt obligations and operating expenses.