Importance of working capital management

It is a significant fact of financial management. Its important stems in two reasons;

- Investment in current assets represents a substantial portion of total investment

- Investment in current assets and the level of current liabilities have to be geared quickly to change in sales.

The importance of the working capital management is also reflected from the activities of financial managers who spend a great deal of time in managing current assets and current liabilities. Arranging short term financing, negotiating favorable credit terms, controlling the movement of cash, administering account receivable, and investing short term surplus funds consumes a great deal of time of financial manager. A business enterprise with ample working capital is always in a position to avail advantages of any favorable opportunity either to buy raw materials or to implement a special order or to wait for enhanced market status. No business can run effectively without a sufficient quantity of working capital. It is crucial to retain right level of working capital. Finance manager is required to decide the amount of accurate working capital. The overall success of the company depends upon its working capital position. So, it should be handled properly because it shows the efficiency and financial strength of company.