Working capital management ensures the best utilisation of a business's current assets and liabilities for the company's effective operation. The main aim of managing working capital is to monitor a company's assets and liabilities to maintain adequate cash flow and meet short-term business goals. It helps with addressing planned and unplanned expenses and determines the efficiency of the business by maintaining liquidity.
Importance of working capital management
A business needs enough cash flow for daily operations such as making payments, purchasing raw materials or managing unforeseen expenses. Working capital helps fulfil these requirements and serves as a report card for the company's financial health.
Proper working capital management allows a business to operate smoothly and improve its earnings. It includes appropriately managing inventory, account receivables and payables to make enough cash available for routine operations. It not only helps businesses meet their financial obligations but also enhances their earnings. Moreover, it assists with identifying areas that require attention to maintain profitability and liquidity.