Disadvantages Of Working Capital

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Working capital management is an important aspect of corporate finance because it directly affects the profitability and liquidity of a company. Working Capital Management is a way of deploying current liabilities and current assets in an efficient way to maximize on short-term liquidity. Working capital is a financial barometer which acts as a representative of operating liquidity available to a firm, basically working capital is the difference between current assets of a firm that is cash or convertible assets that can readily be converted into cash and an organizations short term liabilities, that is current liabilities for which cash will soon be required for. The management of working capital constitutes managing all the current liabilities…show more content…
The short term creditors of the firm in particular are very much interested in knowing the company’s ability to meet its short and current term financial obligations. To avoid and or reduce the risk of the inability to meet short-term obligations and avoid excessive investment, a company must efficiently plan and control current assets and this is liquidity management. Bhunia (2010) states that there is major importance in studying liquidity to both the external and internal analysts, this is because of its close relationship with day to day operations of a company. Bhunia (2010) further notes that there is a major dilemma in managing liquidity that is to have a desired trade of between liquidity and profitability. Problem statement The literature on working capital management insinuates that the relationship between profitability and liquidity remains inconclusive. In addition Lamberson (1995), his research paper showed that working capital management is of Major importance in managing the financial side of a company. Financial managers are finding it hard to pinpoint the important factors that drive working capital management that can improve company profitability. Shin & Soenen (1998) note that the effective management of working capital has significant impact on both the profitability and liquidity of a…show more content…
To study the working capital management of Engen Botswana Ltd. IV. To calculate the operating cycle of Engen Botswana Ltd. V. To advise the company on its working capital management. Research Questions I. What is the relationship between Profitability and liquidity? II. How does Engen Botswana Ltd handle its working capital management? III. How has working capital of Engen Botswana Ltd fluctuated form 2008 to 2014? IV. How can I help Engen Botswana Ltd use working capital efficiently? Hypothesis of the study For the purpose of my study I have taken data of Engen Botswana Ltd from 2008 to 2014. With the help of the data collected I will try to determine the relationship between liquidity and profitability. Since the point of my study is to find the relation between profitability and liquidity, the study will makes a set of hypothesis that are testable. The null hypothesis H0: There is no significant correlation between liquidity and profitability. The alternative hypothesis H1: There is a significant correlation between liquidity and profitability. Scope of the

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