Working Capital Management in Heavy Engineering Firms

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Finance

Working capital management in heavy engineering firms — A case study
Dr. D. Mukhopadhyay

An investigation into the effectiveness of working capital management of an organization with particular reference to its short term liquidity and solvency and impact on commercial operations of the organization.

I

ntroduction : The importance of working capital in any industry needs no special emphasis. Working capital is considered to be life-giving force to an economic entity. Management of working capital is one of the most important functions of corporate management. Every organization, whether profit oriented or not, irrespective of its size and nature of business, needs requisite amount of working capital. Capital to keep an entity working is working capital. The efficient working capital management is the most crucial factor in maintaining survival, liquidity, solvency and profitability of the concerned business organisation. It needs sufficient finance to carry out purchase of raw materials; payment of day-today operational expenses including salaries and wages, repairs and maintenance expenses etc. and funds to meet these expenses are collectively known as working capital.
AICWA, Associate professor (Accounting & Finance), EIILM School of Business, Kolkata, (EIILM University).

In simplicity, working capital refers to that portion of total fund, which finances the day-to-day working expenses during the operating cycle. The term "working" here implies continuity of production and distribution of want removing goods and services required by the society. Working capital is necessary to finance current assets which include inventories, debtors, marketable securities, bank, cash, short term loans and advances, payment of advance tax and so on. Fundamentally, there are two concepts of working capital and they are (i) Gross Working Capital and (ii) Net Working Capital. Gross Working Capital refers to financial resource remaining invested in current



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