Free «Working Capital Management» Essay Sample
These are decisions that are related to short term and working capital financing within a given firm. It entails managing the collaboration that exists between a firm’s short term liabilities and short term assets. The main objective of working capital management is usually to enhance continuity of firm’s operations and at the same time ensuring that the firm has enough cash flow that will enable the firm to meet both operational expenses and maturing debts (Bhattacharya, 2001). The working capital management involves making short run decisions related to financial position of the firm.
The following is an example of a real world application of work capital management. ABC Company limited is stock management policy in place. The policy provides the stock limits within which the company is to purchase new stock or purchase raw materials. The policy states that the company will be making new purchases to increase its stock once the stock has reached a limit of 2000 units. Whenever the company stock is below this limit the purchasing department is supposed to purchase new stock in order to ensure that there is continuity of the firm’s operations. This policy has helped the company to managed it stock at all times by ensuring there is no under stocking or over stocking.
The following are some of the examples of where working capital management is applicable within an organization. First it can be applied in cash management. Cash management involves identification of various cash balances that enable the business to meet daily operational expenses. Secondly it used in inventory management whereby it helps in identification of inventory levels that allow for the continuous production but at the same time reduces investments made in inputs. Working capital management is also applied in debtor’s management whereby the most appropriate credit management policies are identified for the firm in question.
In conclusion working capital management is an important tool that is used by management in order to enhance continuity of operations with a firm.