Volume : III, Issue : X, October - 2013

Working Capital Management: Backbone of the Company

Amit Kumar, Dr. Amit K. Srivastav

Abstract :

Cash is the lifeline of a company. If this lifeline deteriorates, so does the companys ability to fund operations, reinvest and meet capital requirements and payments. Understanding a companys cash flow health is essential to making investment decisions. A good way to judge a companys cash flow prospects is to look at its working capital management (WCM). Many companies still underestimate the importance of working capital management as a lever for freeing up cash from inventory, accounts, and accounts payable. By effectively managing these components, companies can sharply reduce their dependence on outside funding and can use the released cash for further investments or acquisitions. This will not only lead to more financial flexibility, but also create value and have a strong impact on a company’s enterprise value by reducing capital employed and thus increasing asset productivity.High working capital ratios often mean that too much money is tied up in receivables and inventories. Typically, the kneejerk reaction to this problem is to apply the “big squeeze” by aggressively collecting receivables, ruthlessly delaying payments to suppliers and cutting inventories across the board. But that only attacks the symptoms of working capital issues, not the root causes. A more effective approach is to fundamentally rethink and streamline key processes across the value chain. This will not only free up cash but lead to significant cost reductions at the same time

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Article: Download PDF   DOI : 10.36106/ijar  

Cite This Article:

Amit Kumar, Dr. Amit K. Srivastav / Working Capital Management: Backbone of the Company / Indian Journal of Applied Research, Vol.3, Issue.10 October 2013

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