Page 200 - 5.2 i. Manac Finance ITC Summarised Notes

MANAGEMENT OF WORKING CAPITAL
NG

Overview

• Many businesses will have policies to determine target levels of

each category of current assets and financing thereof.

• A certain level of working capital is required for a business to

operate efficiently. If working capital levels are too low, the entity
may face risk of out-of-stock situations, lost sales (credit terms
too strict or inventory not available) or inability to meet essential
cash commitments.

• However, if an entity holds too high working capital levels, it may
not earn sufficient returns on such investment.

• Working capital levels will also vary with changes in turnover and
the inflation rate.

• This topic is concerned with the range of skills required to
manage working capital, including ways in which it could be
financed.

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