FINANCIMG WORKING CAPITAL Support its everyday operations Invest in inventory and it must sale goods or service on credit

it Holding inventory and selling on credit cost money Bankoverdraft-Short-term Working Capital Long term OBJECTIVE OF WORKING CAPITAL Investing in working capital is not excessive-Equity/Debt Ensuring that enough working capital is available to support operating activities--to pay supplies, to avoid liquidity problems CONFLICTING OF OBJECTIVES WITH WORKING CAPITAL MANAGEMENT Over investment should be avoided as it reduces profits or returns for shareholders Under investment should be avoided as it creates Liquidity problems INVESTMENT IN WORKING CAPITAL Should not be too high, with excessive inventories and trade receivables. If it is too high it cost the entity because it is without benefit Should not be too low------Bank draft / Credit supplier The amount to invest in Working capital depends on two things 1. Benefits of having sufficient finance to support trading operations without excessive liquidity risk 2. The cost of financing working capital BENEFITS ON INVESTMENT IN WORKING CAPITAL i. Holding inventories allows customer to be supplied in demand ii. Entities are expected to sell their goods to customer on credit iii. It is useful to have some cash to meet demands for immediate payments DISADVANTAGES ON INVESTMENT IN WORKING CAPITAL i. It cost the entity hence money has just been tied in inventories ii. Current accounts does not earn nothing DETERMING THE LEVEL OF WORKING CAPITAL The target level of working capital investment in an organization is a policy decision which is dependent on several factors including:

1. The length of the working capital cycle 2. Management attitude THE LENGTH OF THE WORKING CAPITAL CYCLE Different industries will have different working capital requirements. -The working capital cycle measure the time taken from payment made to supplier of law materials to the payments received from customer. -In manufacturing company this will include the time 1) Raw materials are held in inventory before they are used in production 2) The product takes in the production process 3) Finished goods are held in inventory before being purchased by a customer. Working cycle in manufacturing is long Working capital cycle in Retailing is short MANAGEMENT ATTITUDE TO RISK 1. An aggressive Working Capital policy will seek to keep working capital to a minimum-Low finished stockConsequence- Stock run out- Supplier may un willing to supply us with goods 2. A conservative working capital policy aims adequate working capital for organization needs. This will results in generous term to customer which will attracts many.