Management of Working Capital Essay Example | Topics and Well Written Essays - 1500 words

Management of working(a) Capital - Essay ExampleA discussion relating to working capital cycle, methods of managing working capital, working capital wariness in UK companies and suggestions for improvement has been presented below.The working capital of the credit line is defined as the net of sure assets over current liabilities. It is an important liquidity measure of the firm. The current assets include not only cash, receivables but also inventories as it can be easily liquidated whereas the current liabilities include short term loans and creditors (University of California, n.d.). A business with scarce working capital faces difficulty in meeting its short term obligations from the available cash resources if thither is a sudden or persisting fall in sales events. Therefore, it is important to maintain an optimum amount of working capital in the business and it must be carefully monitored by the managers (Nix & McFetridge, n.d.).Working capital forms an important part of a firms operations. Maintaining an ideal level of inventory ensures that the firm does not have to face the problem of corporal deficit in meeting its production targets. Similarly the receivables figure in the balance sheet indicates the willingness of the firm to extend goods on credit. As credit sale is risky the management must be careful in the choice of debtors.Working capital consists of current assets equivalent cash, inventory and current liability like creditors and short term loans. The pattern of all the above components of working capital varies with the business cycle. When there is a fall in the market demand there is a rise in the stock of finished goods. Later when this fall in demand takes the form of recession the firm lowers the stock of inventories, delays the payment of loans and accelerates the credit of receivables. This implies that with the worsening of the recession there is a decrease in the working capital. Therefore the efficient management of workin g