Capital management

Capital management
See also

Working capital management is a part of the financial management, and it focuses mainly on short-term financing and investments decisions. It is vital for a company, especially for:

  • Manufacturing firms,
  • Trading firms,
  • Distribution firms.

It’s importance is due to the direct affection of the company's profitability and liquidity (M. Garg 2015, P.4).

Working capital management demand financial managers to decide on the quantities of cash, inventories and other liquid assets the company will poses at any point in time. Addictionaly, they have to decide on the way that current assets will be financed (V. K. Bhalla 2014, P.1). Working capital management is the process of controlling and planning level of those assets, and financing them as well (M. Garg 2015, P. 2).

Working capital management has important place in the theory of finance. Numerous techniques and tools have been developed to provide optimal allocation. Effective use of working capital has a direct impact on the effectiveness of the enterprise. Working capital management manages firm’s assets in a way that it maximises the value of a business. It may be the agent that decides success or failure (M.K. Jain 2004, P. 1-3). Importance of working capital management comes from the fact, that it plays very important role in firm’s financial health maintenance during the course of business (V. K. Bhalla 2014, P.3).

Working Capital[edit]

Working capital refers to the short term funds necessary for financing whole cycle of the Accounting Year. This capital is crucial for company's growth and profitability. It’s structure is involved with the matters that may come up during management’s process, current liabilities, and relations between them (M. Garg 2015, P.2). Working Capital is the amount of finances crucial for covering the operating costs. It is the part of capital invested in current assets (M. Garg 2015, P.5).

References[edit]

Author: Karolina Liskiewicz