Objectives of Working Capital Management
Working capital management is all about making sure that a company can meet its short-term financial responsibilities, keeping operations running smoothly, and increasing the value of shares. These are the main goals of managing working capital,
1. Liquidity Management: One is liquidity management, which means making sure the company has enough cash on hand to pay its short-term debts as they come due. To do this, you need to have enough cash on hand and assets that can be quickly turned into cash to cover your present debts.
2. Optimal Utilisation of Resources: Try to find a balance between keeping enough working cash on hand and not having too many assets that aren’t being used. The goal of this purpose is to make the best use of money by avoiding the needless holding costs that come with having too much inventory or accounts receivable.
3. Risk Management: Reduce the risks that come with working capital, like credit risk in accounts payable and inventory going out of date. Strategies for finding, evaluating, and lowering risks that could affect cash are part of good working capital management.
4. Maximizing Profitability: As long as liquidity is maintained, working capital management tries to maximise profitability by keeping the cost of hanging onto extra working capital as low as possible. This includes managing inventory well, negotiating good credit terms, and finding the best ways to collect on accounts outstanding.
5. Effective Cash Flow Management: Make sure you manage cash flows well so that you have a steady flow of cash coming in and going out. This means making accurate predictions about how much cash you will need, collecting receivables quickly, and managing payables wisely.