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WORKING CAPITAL MANAGEMENT

Working capital is the firms total investment in current assets. Working capital management

Working capital management includes the administration of each current assets accounts such as cash, marketable security , accounts receivable , and inventory etc . Working capital management concerns decision about a firms current assets and current liability

The decision are required to plan and control the flow of dollars among various working capital accounts and other balance sheet account to ensure adequate liquidity for the firms . Working capital decision are also required to establish and monitor appropriate levels in each working capital accounts to enhance the firms profitability working capital management involves decision about how these assets are finance.

NET WORKING CAPITAL


Net working capital is the difference between the firms current assets and current liabilities

IMPORTANCE OF WOKRIKNG CAPITAL


1. Working capital comprises a large portion of firms total assets.
2. Working capital represent those assets that are most manageable 3. Working capital management consume the largest portion of the financial manager times. 4. Working capital man management directly effect the firms liquidity and profitability 5. Working Management directly effect the firms long term growth and survival

THE FACTOR EFFECTING CURRENT ASSETS

KING OF FIRMS
THE VOLUME OF SALES THE VARIABILITY OF CASH FLOW THE LENGTH OF THE OPERAING CYCLE

WOKRIN G CAITAL MANAGEMTN STRATEGIES


CONSERVATIVE STRATEGIES Conservative strategies are low-risk low-return approaches to working capital management conservative strategies include holding liquid assets . In excess of expected needs and minimizing the amount of short-term financing used to finance them. AGGRESSIVE STRATEGIES

Are high-risk high-return approaches to working capital management . Aggressive strategies include minimizing the month of liquid assets and maximizing the amount of shortterm debt used to finance them.

WORKING CAPITAL PROBLEM


Holmerg Manufacturing Corporation is considering the working capitol management strategies for the coming year: (1) A conserve strategy required a large investment in current assets, $ 30,000, and a small amount of short-time debt, $5000 (2) A moderated strategies using both a moderate amount of current assets, $20,000 and short-term debt, $15,000 and

(3) An aggressive strategy having a small investment in current assets, $ 10,000 and large amount of short-term of short-term debts, $ 25,000.
Fixed assets are to remain at $ 50,000 through the year. The firms capital structure requires total liabilities to represent of total assets. Interest rates are expected to be 8 percent on short-term debt and 12 percent on long-term debt. The firm expects to earn 20 percent before interest and taxes (EBIT) on 80,000 in sales. The firm has a 34 percent .

BALANCE SHEET Current Assets Fixed Assets Total Asset

Conservative Moderate 30,000 50,000 80,000

Aggressive

MODERATATE STRATEGIES
Moderate strategies are moderate-risk and moderate return approaches to working capital management. Most firms follow moderate strategies in which they use intermediate levels of both current assets and current liabilities.