Working Capital Management Paper
University of Phoenix
FIN/320 Corporate Finance
August 4, 2008
Many organizations that are profitable on paper are forced to cease trading due to an inability to meet short-term debts when they fall due. For an organization to remain in business it is very important that an organization successfully manages its working capital. Sometimes an organization ignores this area in the business. This paper will explain the facts surrounding working capital, and using live examples will consider the level of working capital required by businesses operating in different industries. This paper covers problems faced by small organizations before reviewing some of the ways in which an organization can improve its management of working capital. An organization working capital is used to pay short-term obligations that include accounts payable and buying inventory. If an organization working capital gets low, then the company is at risk running out of cash. An organization can be profitable businesses but they can run into trouble if they lose the ability to meet their short-term obligations. Working capital management involves the relationship between a firm's short-term assets and its short-term liabilities. The goal of working capital management is to ensure profits (Wilson May, 2008 p.105).
If a business owner and manager does not properly handle the businesses working capital funds to run the company then the company goes broke very quickly. Even though the Working Capital is soundly strong (WCM=Current Asset-Current Liabilities), but it doesn't really tell the true position of WCM. Now, one of the best ways to investigate the company financial performance is by learning the Working Capital Management Strategy and Physical Chain Analysis of a particular company. Then, the company true color will be displayed. The funds that is readily available to operate a...