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Working Capital Management for a firm is the integrating part of its business. The students must know the advantages followed by it to understand the specialty of this subject. Our teachers provide a detailed thesis on options working capital management assignment solutions so that the students can understand the variations.
What is Working Capital Management and what are the elements of it?
Working Capital Management refers to the company’s managerial strategy as well as the accounting strategy to monitor as well as utilize the working capital in the business. The current assets and the current liabilities are also kept in check to see that the company is working efficiently or not.
The primary function of these working capital management is to see whether the company has a good cash flow or not. This commonly involves in the monitoring of the inflow and the outflow of the cash. The inventory turnover ratio and the current assets, as well as the liabilities ratio, are kept in mind while calculating the working capital of a company.
There are mainly three main components of working capital. They are the following.
- Accounts Receivable
These are the revenues due or what is owed to any company by its customers. These are termed as assets in the company’s balance sheet.
- Accounts Payable
These are the liabilities of the company and the legal obligations of how much money a company is obligated to pay out over a short period of time.
- Inventory
These are the primary assets of the company which is needed to convert the sales of the company into revenue. The rate at which the inventory of the company is replaced and then bought again is a measure of the success of the company. (Example-stocks, products, cash flow in the business and etc.)
How is Working Capital Management important in a business?
There are certain advantages to the working capital management in a company. Those advantages are listed out in several points below.
- Ensures liquidity of the business
A business can often get into trouble due to the lack of cash for payment to the outstanding loans and dues of the business. This can be avoided if there is an efficient working capital management in the business. This ensures the liquidity of the company by monitoring the accounts receivables and payables and also the inventory turnover every year.
- Smooth Working of Business
With an efficient working capital management in the business, the workers can be less interrupted in their work. The quick ratios provide the efficiency of the business and whether the business is actually facing terrible loses or not. Also, this ensures the efficiency of the workers and how far the company or the business has actually progressed.
- Enhance the profitability of the business
Proper allocation of the funds with effective working capital management can ensure good profitability of the business. On time collection from trade receivables by the firm can be a key to the management of these business operations. There will also be fewer cases of default with proper working capital management.
- Improving the financial health of the company
A company can only outshine its peer when it has a strong base to hold on. With efficient working capital management in the company, the operations can be efficient enough to eliminate loss through wastage of time and effort. With a proper financial hold of the company’s assets and liabilities, any business can stand out in the market.
- Value Addition of the business
As explained in the earlier points, working capital management adds a proper value to the business. A sense of respect emerges for the company in spite of the heavy competition which is on the rise.
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