Define working capital management. Discuss the effects of globalization and technology on working capital management.
Working capital management refers to the strategies used by companies to evaluate the financial strength and efficiency of a company (Mathuva, 2015). Ideally, working capital management is concerned with managing the connection between the short term liabilities and the short term assets of the company. This is done to ensure the operations of the company continue swiftly and the debt obligations are met on time. Hence, working capital management will always ensure any funds invested by the company as current capital revolve continuously and are easily converted to cash. In other words, working capital management measures the extent of the surplus in current assets over current liabilities in a company. The main focus is evaluating the level at which the company can comfortably finance an increase in turnover in the business from other funding sources (Bhattacharya, 2014). Since working capital is an important element in evaluating the financial position of the company, it is always referred to as short-term capital or circulating capital. Equally, it is often featured in the profitability and balance sheet or the income statement of a company.
Working capital management is often associated with different components of the company like debtors, creditors, inventories and cash equivalents (Bhattacharya, 2014). Apparently, the sales volume, the length of the cash cycle and operating, the nature of the business and seasonality generally affect working capital. However, globalization and technology, on the other hand, affect working capital management. According to Mathuva (2015), globalization and technology have a strong influence on many companies as they enhance efficient management of capital thereby increasing the profitability of the firm. When working capital is influenced by technology and globalization, the company is able to transact in the global market arena thus managing the short term liabilities and the short term assets accordingly.
Bhattacharya, H. (2014). Working capital management: Strategies and techniques. PHI Learning Pvt. Ltd.
Mathuva, D. (2015). The Influence of working capital management components on corporate profitability.
by EssayRoyal, Dec. 10, 2019, 5:28 p.m.