The pre-requisite to the long-term solvency is the ability for the company of meeting it… Efficient working capital management does not just improve cash flow as an overarching goal. Also, the short-term or temporary assets should be financed by short-term sources of finance. (b) pay off short-term debts. The goal of working capital management is to: Select one: a. achieve a balance between short-term and long-term assets so that they add to the achievement of the firm's overall goals. Yes, you want to have positive working capital, but the goal is to have $2 in current assets for every $1 of current liabilities. It is not easy; it is as good as circulating 5 balls with two hands without dropping a single one. Management of working capital is one of the key objectives of working capital management. Be the first to rate this post. 1 The twin objectives of working capital management are profitability and liquidity 2 A conservative approach to working capital investment will increase profitability 3 Working capital management is a key factor in a company’s long-term success. c. achieve a balance between risk and return in order to maximise the firm's value. Don’t confuse short-term working capital needs and longer-term, permanent requirements; While it can be tempting to use a working capital line of credit to purchase machinery or real estate or to hire permanent employees, these expenditures call for different kinds of financing. the cycle starting from the acquisition of raw material to its conversion to cash should be smooth. Maintaining the working capital operating cycle and its smooth … All these can effectively accomplish when following best standard in the industry, setting objectives of working capital as well as an art of working capital management. Then lenders, suppliers, non-trade creditors as well as provides will be more interested in carrying a business with you. The interaction between current assets and current liabilities is, therefore the main theme of the theory of the working capital management. The return on the investment infused on short term assets must exceed the average cost of capital to ensure wealth maximization. The final element of working capital management is inventory management. Goal programming is necessary to model the working capital decision, as a balance has to be achieved between the conflicting objectives of liquidity and profitability. It includes collecting and processing raw materials and other initial investment in time, placing all the essentials for production beforehand, selling finished products as soon as possible, collecting account receivables on time and clearing all the account payable’s in time. (d) achieve a balance between short-term and long-term assets so that they add to the achievement of the firm’s overall goals. Its a nice information on working capital management. One of the major objectives of working capital management is to ensure that there is no hindrance during the above mentioned process. Working capital management is a quintessential part of financial management as a subject. Working Capital Management Quiz For Beginners, Top 10 – Best Mid Cap Stocks to Buy for Long Term in India 2021, Top 10 – Best Small Cap Stocks to Buy for Long Term in India 2021, Top 10 – Best Large Cap Stocks to Buy for Long Term in India 2021, Income Tax Slab, Deductions, Limitations in India – A.Y. Management of working capital is one of the key objectives of working capital management. The primary objective of working capital management is to ensure a smooth operating cycle of the business. The good net working capital is required to stay in a stable equilibrium. The goal of working capital management is to have adequate cash flow for continued operations and have the most productive usage of resources. Working capital management involves the relationship between a firm’s short-term assets and its short-term liabilities.The goal of working capital management is to ensure that a firm is able to continue its operations and that it has sufficient ability to satisfy both maturing short-term debt and upcoming operational expenses. Applying the correct ratios will reveal the management strategies and techniques along with some additional necessary analysis. Managing the firm's working capital is a day-to-day activity that ensures the firm has sufficient resources to continue its operations and avoid costly interruptions. Keeping those three ratios at optimal levels ensures efficient working capital management. It assists the business management to properly allocate their resources in order to achieve quarterly business goals and objectives. 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