Factors Of Working Capital Management

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Introduction Working capital management is a very important component of corporate finance because it affects profitability and liquidity. WCM is important for many reasons. Manufacturing firm’s current assets accounts for one half of its total assets, distribution companies current assets account for even more. A high level of current assets results in high level of return on investment. Firm with few current assets face difficulties in maintaining smooth operations (Wachowicz, 2000). Efficient working capital management is to manage current assets and current liabilities in a way that leads to meet short term obligations and manage excessive investment in these assets. (Eljelli, 2004). On the other hand working capital is known as short term…show more content…
Decisions that tend to increase profitability tend to increase risk, and, conversely, decisions that focus on risk reduction will tend to reduce potential profitability. (Gitman & L.J, 1974) Argued that the cash conversion cycle was a key factor in working capital management. Actually, decisions about how much to invest in the customer and inventory accounts, and how much credit to accept from suppliers, are reflected in the firm’s cash conversion cycle, which represents the average number of days between the date when the firm must start paying its suppliers and the date when it begins to collect payments from its customers. Previous studies have used measures based on the cash conversion cycle to analyze whether shortening this cycle has positive or negative effects on the firm’s profitability. Empirical evidence shows that aggressive working management policies enhance profitability (Jose, M.L, Lancaster, & J.L, 1996)This means as working capital investment will reduce profits will enhance. These results focus on the larger firms. Current assets and liabilities management is important for small and medium sized firms. Most of these companies’ assets are in the form…show more content…
In this research extra some understanding identified with the issue in previous studies in Pakistan of in similar manner. Its point of interest are useful for directors and approach designers of organizations about choice for good conceivable standard of WC, its administration and whole data about its system, Furthermore this study characterized the connection of organization productivity and WCM components. This study additionally accommodating for the individuals who need to execute another research on the similar topic and its provide information about the financial specialists potential purchasers and banks of the associations identified with the impact of WCM on organization’s profitability and approach. At last this study rolling for specialists to obtain new data about the problem investigation and provide genuine

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