Page 5 - PowerPoint Presentation
P. 5
MANAGEMENT OF WORKING CAPITAL
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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