Basically, there are two types of capital need which comprises the following:
Working Capital Management:
Is the management of all aspects of both current assets and current liabilities, so as to minimize the risk of insolvency while maximizing return on assets.
The primary objective of working capital management is to ensure that sufficient cash is available to:
It is critical to understand that Profit is not Cash. A company can be very profitable but it can collapse simply because it has insufficient cash/liquidity to pay its relevant bill (as stated above).
Always remember that any company liabilities are settled with cash and not by profit.
Importance in Optimizing Working Capital Management:
Poor working capital management can lead to:
Characteristics of over-capitalisation are excessive stocks, debtors, and cash, low return on investment with long term funds tied up in non-earning short term assets.
Over-trading leads to escalating debtors and creditors, and if unchecked, ultimately to cash starvation.
May 15, 2013
- In Personnel Management, explain what is 360-degree feedback and give the advantages and any pitfalls of this type of feedback?
May 16, 2013
- In Personnel Management,do you think that labour turnover has any advantages to an organization? List a few potential advantages
May 17, 2013
May 21, 2013
- In an organization, briefly explain the benefits or advantages and disadvantages of decentralization
May 25, 2013
- What are the advantages and disadvantages of using Stock Financing from the viewpoint of the Corporation