Introduction And Meaning Of Working Capital Management
Working capital management refers to the process of managing company's short term assets and liabilities to maintain proper cash flows. It helps to improve operational efficiency by providing adequate working capital. So, it ensures smooth functioning of day-to-day business activities. Good working capital management helps to maintain proper liquidity and solvency in the firm.
Importance Of Working Capital Management
The main importance of working capital management can be described as follows:
1. To Minimize Financial Risk
Working capital management ensures adequate liquidity in the business that helps to maintain positive cashflow and minimizes the financial risks.
2. Smooth Functioning
It provides sufficient working capital that facilitates timely supply of raw materials and other accessories. It ensures smooth functioning of day-to-day business activities without delay and interruption.
3. Increases Profitability
Working capital management ensures smooth functioning of operational activities that helps to increase the efficiency and the volume of production. Increased production minimizes the cost of production and increases the earnings of the firm.
4. Maintains Liquidity And Solvency
As we know that working capital management maintains sufficient cash in the business. Because of adequate fund, the firm can strengthen its liquidity and solvency position.
5. Discount Facility
Company can purchase large volume of raw materials and accessories because of sufficient working capital. So, the company can take the advantage of bulk buying and discount facility.
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Importance Of Inventory Management
Importance Of Receivable Management
6. Meeting Financial Obligations
Working capital management helps to meet company's short-term debt and liabilities that helps to improve the image and creditworthiness of the firm.
7. Ability To Face Crisis
Because of more working capital, the company can easily face difficulties at the time of emergencies and crisis.
