Working Capital Management

GLOBAL IMMERSION PROJECT-1

IMPACT OF WORKING CAPITAL MANAGEMENT ON FIRM’S EFFICIENCY, PROFITABILITY AND VALUE

LITERATURE REVIEW

AUTHOR

Sakshi Parakh– MS18GF047

Rishub Modi – MS18GF022

Prashant Venkatramani – MS18GF028

                                                          UNDER THE GUIDANCE OF

Dr. Nawazish Mirza

Ms. Farah Naaz

SP Jain School of Global Management

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A] INTRODUCTION 

“Cash is the lifeblood of any company. It’s more important than ever for businesses to optimise this fundamental aspect of financial performance if they’re to maintain a steady course in these uncertain times. Given that working capital is the cheapest source of cash, nothing is more vital than having a cash culture and good liquidity on boar”

Working capital refers to the difference between current assets         and current liabilities. The funds are used to meet the short-term obligations of business to carry out their day to day operations. Managing short term funds is equally important as managing the long-term funds. Working capital should be managed in effective manner so that the business operations are smooth.[pic 2]

In every business field, working capital is a critical element of investment as it is not possible for business to carry out their day to day operations without efficient cash. Every business requires certain vital elements like raw materials, cash to pay labour, funds to generate funds for stock so that the demand of consumer is met. Ability of business to provide goods to consumers on credit basis.

Working capital management is considered by many researchers in their research as it shows the effect of funds on day to day operations of the business. During the recession, organisation set up the strategies that can be helpful in improving the survival life of the organisation.

 As external market factors play vital role in the operations of business, minimal control is exercised by the business on the external factors. These factors are important as it makes critical to manage the working capital and allow organisation to survive and increase their performance in such conditions. In large organisations, management of working capital prevents liquidity problems and the capacity of the organisation to manage financial problems is improved.

Working capital is important as it allows business to maintain production schedule and sales, the major concern of the business. If the working capital is not managed properly then the production process is interrupted, which may affect the business. The business should have enough capacity to provide credit sales to consumers as it is important for promotion of sales, without proper working capital the firm will be not be able to provide credit sales as it is dependent on the availability of funds in the production process.