Working Capital Management : Strategic Techniques & Choices

Financial needs of a modern enterprise may be classified into two categories: (a) fixed capital, and (b) working capital.

Fixed capital includes land and buildings, plant and machinery, and tools and implements.

The requirement of finance to purchase fixed capital is essentially long-term in nature.

Working capital, short-term in nature, is required to purchase raw materials and meet day-to-day administrative and other such expenses.

Management of working capital is important because efficient handling of working capital plays a crucial role in the successful functioning of a business enterprise.

Working capital facilitates the utilisation of capacities created by fixed capital.

Excessive working capital leads to unremunerative use of scarce funds while inadequate working capital interrupts the smooth run of business activity.

Hence, both the situations impair profitability. Sound working capital management, by optimising the use of funds, enhances profitability.

It improves liquidity by focusing attention on flow of funds through proper management of cash, receivables, inventories and short-term sources of funds. While efficient working capital management can do much to ensure the success of a business, its inefficient management can lead not only to loss of profits but also to ultimate downfall of what otherwise might be considered as a promising concern.

This book provides a comprehensive account of different aspects of working capital management, including, inter alia, size and adequacy of working capital, structure and efficient utilisation of working capital, financing pattern of working capital and factors influencing investment in working capital.