Managing Working Capital Essay Example | Topics and Well Written Essays - 2000 words

Managing Working Capital - Essay ExampleThe working capital counsel takes the concept of managing inventories, cash, receivables and payables and the short shape funding. Inventory management is quite important for an government activity. Maintaining a high level of inventory foundation incur higher cost for the firm, while a showtime inventory level can put a hindrance on the way to meet the customer needs. So it is very much obligatory to flip ideal inventory level to meet the customer demands at a minimum possible cost. In a similar way, the receivables would indicate about the willingness of the organisation to offer products or services on credit based. This credit sale is quite risky if not managed well. On the other hand sometimes firms fox to offer their products or services on credit basis, as that would fetch more customers to increase the business volume. This again is a risk return tradeoff for the organisation.Cash is an important component of the current assets on balance sheet. This is the most liquid asset that a company can avail in move situation. On the other end, having an excess level of cash can block to use that as operating capital. So having an optimum cash level is necessary for proper business functioning. Cash and short term securities management is very much needed from liquidity point of view. In all, a proper management of working capital is very much necessary to generate cash and improve profits at a reduced risk level.The allocation can be changed with due change in the financial and operational environment. For an instance in recession time, firms would like to cut down their inventory levels, delay the debt compensation and at the same time would like to accelerate the payments from debtors. So different periods can have different working capital needs. Even this can spay depending upon the industry or depending upon the size of the organisation. For an instance retail