Working Capital, Essay Example

The implication of working capital in a business is the cash necessary for the daily operations which include processing the raw materials to achieve the finished items to be sold. The management of working capital in any business is the most critical challenge especially for the small business. It becomes apparent that a business has sufficient assets as well as be in a position to make profits but most of the assets at it its disposal cannot readily be liquidated. The inventory levels, payable and receivable accounts are some of the most vital items in as far as the working capital is concerned. Therefore, the management of the above mentioned items is a very important aspect in the management of the business working capital. Mismanaged its working capital is depicted by a decrease in the current assets of the business relative to the current liabilities leading to a deficiency or deficit in the working capital.

There are notable current assets mismanagement that are most likely cause of a shortfall in the working capital. It is important to note that the current assets play a vital role as statement items of the financial position of the business and this especially important for small businesses. Significant business failure is evident if the current assets are mismanaged which can be projected through the company’s inefficiency in meeting important bills once they accrue, overtrading as well as overstocking.

It is the duty of the management to take care of the business trading assets such as inventory, cash as well as trade receivables. Greater care is inevitable with respect to such items that are readily convertible in to cash within a single business cycle