WORKING CAPITAL:

Working capital management refers to a company's managerial accounting strategy designed to monitor
and utilize the two components of working capital, current assets and current liabilities, to ensure the
most financially efficient operation of the company. The primary purpose of working capital
management is to make sure the company always maintains sufficient cash flow to meet its short-term
operating costs and short-term debt obligations.

Working capital refers to company’s investment in short term asset such as cash, inventory, short term
marketable securities and account receivable.

MANAGEMANT OF WORKING CAPITAL:

Working capital refers to excess of current assets over current liabilities. Management of working capital
therefore is concerned with the problems that arise in attempting to manage current assets, current
liabilities and inter relationship that exists between them. The basic goal of working capital management
is to manage the current assets and current of a firm in such a way that satisfactory level of working
capital is maintained i.e. it is neither inadequate nor excessive.

THE NEED OR OBJECTS OF WORKING CAPITAL:

The need for working capital arises due to time gap between production and realisation of cash from
sales. There is an operating cycle involved in sales and realisation of cash. There are time gaps in
purchase of raw materials and production, production and sales, and sales and realisation of cash.
Thus, working capital is needed for following purposes.
-For purchase of raw materials, components and spares.
-To pay wages and salaries.
-To incur day-to-day expenses and overhead costs such as fuel, power etc.
-To meet selling costs as packing, advertisement
-To provide credit facilities to customers.
-To maintain inventories of raw materials, work in progress, stores and spares and finished stock.

Greater size of business unit large will be requirements of working capital. The amount of working
capital needed goes on increasing with growth and expansion of business till it attains maturity. At
maturity the amount of working capital needed is called normal working capital.

FACTORS DETERMING THE WORKING CAPITAL REQUIREMENTS

Nature or Character of Business:
Size of Business/Scale of Operations:
Production Policy
Manufacturing process / Length of Production cycle:
Seasonal variations
Working Capital Cycle:
Rate of stock turnover
Credit Policy:
Business Cycles:
Rate of Growth of Business:
Earning Capacity and Dividend Policy.
Price Level Changes:

SOURCES OF WORKING CAPITAL FINANCE:

1. SHORT-TERM SOURCES
A. Short-term Internal Sources-
-tax provisions
-dividend provisions
B. Short-term external sources-
-bank overdrafts,
-cash credits,
-trade deposits,
-bills discounting,
-short-term loans or working capital loans,
-inter-corporate loans,
-commercial paper, etc.

2. LONG-TERM SOURCES
A. Long-term internal sources
-retained profits
-provision for depreciation
B. Long-term external sources
-equity share capital
-long-term loan
-debentures

CASH MANAGEMENT SYSTEM:

The cash management module within the working capital management system should be fully
integrated with other modules like account receivable/payable, payroll and general ledger. The main
features of cash management tools are as follows:
-The module tracks complete audit trails of all transactions and adjustment for controls.
-It highlights current and future balances for all cash accounts.
-The module has the capability for complete drill down to the source of all transactions.
-The module provides full bank reconciliation.
-It allows export of information for analysis, forecasting, presentation, reports, etc.

INVENTORY MANAGEMENT SYSTEM:

Inventory management and control module is utilized by companies to avoid product overstock and
outages. There are several components of an inventory management tool such as order management,
asset tracking, product identification, etc. The main purpose within the inventory management system is
to reduce the overall costs of carrying. An inventory management tool helps in:
-Sustain a balance between too less and too much inventory.
-Track inventory between locations.
-Track inventory been received at warehouse.
-Track product sales and finished goods inventory.

The main advantage of an inventory management tool is cost savings, increased efficiency, warehouse
management, etc.