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Milan Vaishnav
Milan Vaishnav , Financial Advisor
Category: Finance
Satisfied Customers: 972
Experience:  Technical Analyst in Financial Markets -- Experience of more than 10 years in consulting
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State reasons why working capital management is important to

Customer Question

State reasons why working capital management is important to financial managers.
Submitted: 6 years ago.
Category: Finance
Expert:  Milan Vaishnav replied 6 years ago.

Dear Friend,

 

Working capital, also known as net working capital or NWC, is a financial metric which represents operating liquidity available to a business.

 

The working capital is the life-blood and nerve centre of a business firm. The sufficiency of working capital assists in raising credit standing of a business because of better terms on goods bought, lesser cost of manufacturing due to the acceptance of cash discounts, favorable rates of interest etc.

 

No business can run effectively without a sufficient quantity and management of working capital. It is crucial to retain right level of working capital. Finance manager is required to decide the amount of accurate working capital.

 

A business enterprise with proper working capitalmanagement is always in a position to avail advantages of any favorable opportunity either to buy raw materials or to implement a special order or to wait for enhanced market status.

 

Inventory control is also a significant constituent in working capital management. The deficiency of inventory may cause work stoppage. On the other hand, surplus inventory may result in blocking of money in stocks.

 

The overall success of the company depends upon its working capital management. So, it should be handled properly because it shows the efficiency and financial strength of company.

 

References:

http://en.wikipedia.org/wiki/Working_capital

http://quickfinancecheck.org/importance-of-working-capital-in-business

http://www.investopedia.com/terms/w/workingcapital.asp

 

I hope the above helps...

Regards,

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