Working Capital Management
INTRODUCTION
Working capital is an essential facet of corporate management. Current operating assets, inventory, and accounts receivable must be funded. Much of the needed funding comes from short-term liabilities such as accounts payable and working capital lines of credit.
However, there may also be a need for additional capital to fund these assets. The management of working capital is an important activity in terms of efficiency as well as effectiveness. Companies cannot operate without required working capital assets, yet too much investment in working capital can drain efficiency and profitability from the organization.
The focus of this unit is on managing investments in operating assets, also known as working capital management. Effective working capital management ensures that a company has access to the funds necessary for day-to-day operations, while at the same time making sure that the company’s assets are invested in the most productive way; achieving this goal requires a balancing of concerns. In this unit you will learn about the management of current assets and current liabilities, addressing a firm’s overall level of liquidity.
OBJECTIVES
To successfully complete this learning unit, you will be expected to:
1. Evaluate working capital management policies and their effect on the firm’s profitability, liquidity, risk, and operations.
2. Examine the importance of working capital management and its role in meeting the firm’s strategic objectives and its effect on creating value.
3. Formulate appropriate working capital management policies to achieve corporate objectives.