Working capital

management
Prepared by- sanjay parmar
Guided by- Dr. Butalal Ajmera
Submitted to
Department of Business Administration
Bhavnagar University
Bhavnagar

What is 'Working Capital Management'

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

Objectives
The primary objective of working capital management is to
ensure that sufficient cash is available to:
meet day-to-day cash flow needs;
pay wages and salaries when they fall due;
pay creditors to ensure continued supplies of goods and
services;
pay government taxation and providers of capital, dividends;
and
ensure the long term survival of the business entity.
It is critical to understand that Profit is not Cash. A company
can be very profitable but it can collapse simply because it has
insufficient cash/liquidity to pay its relevant bill (as stated
above).
Always remember that any company liabilities are settled with
cash and not by profit.

Need And Importance Of Working Capital

Working capital is the life blood and nerve centre of business. Working capital
is veryessentialto maintain smooth running of a business. No business can
run successfully without an adequate amount of working capital. The main
advantages or importanceof working capital are as follows:
1. Strengthen The Solvency
Working capital helps to operate the business smoothly without any financial
problem for making the paymentof short-term liabilities. Purchase of raw
materials and payment of salary, wages and overhead can be made without
any delay. Adequate working capital helps in maintaining solvency of the
business by providing uninterrupted flow of production.
2. Enhance Goodwill
Sufficient working capital enables a business concern to make prompt
payments and hence helps in creating and maintaining goodwill. Goodwill is
enhanced because all current liabilities and operating expenses are paid on
time.

3. Easy Obtaining Loan

A firm having adequate working capital, high solvency andgoodcredit rating can
arrange loans from banks andfinancial institutionsin easy and favorable terms.
4. Regular Supply Of Raw Material
Quick payment of credit purchase of raw materials ensures the regular supply of
raw materials fro suppliers. Suppliers are satisfied bythe paymenton time. It
ensures regular supply of raw materials and continuous production.
5. Smooth Business Operation
Working capital is really a life blood of any business organization which maintains
the firm in well condition. Any day to day financial requirement can be met
without any shortage of fund. All expenses and current liabilities are paid on
time.
6. Ability To Face Crisis
Adequate working capital enables a firm to face business crisis in emergencies
such as depression.

Literature Review

Harsh Pratap Singh

Satish Kumar

Detailed content analysis reveals that most of the research work is

empirical and focuses mainly on two aspects, impact of working
capital on profitability of firm and working capital practices. Major
research work has concluded that WCM is essential for corporate
profitability. The major issues with prior literature are lack of
survey-based approach and lack of systematic theory
development study, which opens all new areas for future research.
The future research directions proposed in this paper may help
develop a greater understanding of determinants and practices of
WCM.

Vikash Ramiah
Yilang Zhao
Imad Moosa

The results show that more than half of the participants in the
survey altered theirworkingcapitalmanagementpractices during
the crisis.Capitalexpenditure was curtailed, as they aimed at
preserving their cash levels while reducing inventory levels. Credit
worthiness of institutions became more important, and there was
a general decline in credit availability. The results also show that
Australianworkingcapitalmanagers exhibit behavioural biases,
particularly overconfidence.