Working Capital Management
1.1. WORKING CAPITAL MANAGEMENT
Working capital may be regarded as life blood of a business. Working capital management is a process of planning and controlling the level and mix of the current assets of the firm as well as financing these assets. A study of working capital is of major importance to internal and external analysis because of its close relationship with the day-to-day operation of a business. Even in a well-established business with a long history of successful operation, careful attention to the management of working capital results in greater profitability.
Funds which are needed for short term purpose for the purchase of raw materials, payment of wages and other day-to-day expenses are known as working capital. The goal of working capital management is to manage each of the firm’s current assets and current liabilities. Working capital is also known as circulating capital or current capital or revolving capital.
Capital required for a business can be classified under two main categories viz;
Every business needs funds for two purposes for its establishment and carryout its day-to-day operations. Long-term funds are required to create production facilities such as purchase of plant, machinery, land, building, furniture’s, etc., Investment in these assets represent that part of the firms capital which is permanently blocked and it is called as fixed capital.
Funds are also needed for short-term purpose for the purchase of raw materials, payment of wages and other day-to-day expenses. These funds are known as working capital. The working capital may rightly to be called as the circulating or revolving capital, because current asset keep revolving fast and are being constantly converted into cash and this cash flows out again in exchange for other current assets.
1.1.1. DEFINITIONS According to Genestenberg “Circulating capital means current assets of a company