Working Capital Management Finance Homework Help
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Working capital is a financial tool to measure the operating liquidity of a business. It is the capital required by a company to finance short term assets like debtors, inventories and cash marketable security. Working Capital is also known as circulating or short term capital. It is calculated by the formula, working capital= current asset-current liabilities. Working capital management is the strategy implemented by a company to handle the relationship between its short term assets and short term liabilities so that it can meet its obligations and continue with its operations. Working capital consists of cash inventory, accounts receivable, accounts payable and many other short term accounts or debts which are due within one year.The working capital policies affect the liquidity, profitability and structural health of an organization. The three working capital management strategies given in Working Capital Management Finance Homework Help are conservative, aggressive and hedging.
Components of Working Capital Management
The Different Components of Working Capital Management explained in Working Capital Management Finance Homework Help are
• Cash and Cash Equivalence- It is the most important component of working capital. Management of cash helps in knowing the size of company’s liquid assets. It gives an idea about the correct amount of short term investments a company should make. It provides a systematic way to control the payment and collection of cash. Cash management helps an organization to improve its credit rating, reduce financial costs and avoid insolvency. For more details, students can refer Working Capital Management Finance Homework Help.
• Management of inventories – Inventories consists of raw materials, work in progress and finished goods. Management of inventory helps in controlling the assets which are produced by a company ad are to be sold in the regular business. Management of inventory is essential for a company as if there are excessive stocks, the burden on the cash resources will increase while, if there are insufficient stocks, the sales decline.
• Management of receivables- Receivables are an important part of the current assets of the company. It is important to control and manage thee receivables effectively as investment in receivables involves certain costs to be incurred by the company and it also involves the risk of bad debts. For management of receivables, the company should adopt a clear credit policy and must have an effective control over the credits by setting credit limits for every customer. Management of receivables is a vast topic. Hence, Working Capital Management Finance Homework Help provides insight on the topic.
• Management of accounts payable- In order to increase the position if cash of a business, management of creditors play a vital role. Accounts payable management is necessary as it involves outflow of cash and any ambiguity can create liquidity problems for a company.
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