Dr. R.A.N.M ARTS AND SCIENCE COLLEGE�Affiliated to Bharathiar University , �Accredited with “ B+” NAAC�
Mrs. S. Bibi Fathima M.Com.,M.Phil.,� Assistant Professor,� Department of Commerce (CA)
Course Name : Financial & Investment Management
�Welcome You All
WORKING CAPITAL MANAGEMENT:
MEANING
Operates efficiently by monitoring and using its current assets and
liabilities to the best effect. The primary purpose of working capital
manage-ment is to enable the company to maintain sufficient cash flow to meet
its short-term operating costs and short-term debt obligations.
DEFINITION:
Working capital management is a business strategy designed to ensure
that a company operates efficiently by monitoring and using its current assets
and liabilities to the best effect. A company's working capital is made up of its
current assets minus its current liabilities.
DETERMINANTS OF WORKING CAPITAL REQUIREMENT:
Importance of Cash:
Cash is the primary asset individuals and companies use regularly to settle their debt obligations and operating expenses, e.g., taxes, employee salaries, inventory purchases, advertising costs, and rents, etc.
Cash is used as investment capital to be allocated to long-term assets, such as property, plant, and equipment (PP&E) and other non-current assets. Excess cash after accounting for expenses often goes towards dividend distributions.
Types of Cash Management:
In this type of cash management, the cash flow statement shows the cash records that come from the regular activities of the business on a day-to-day basis. It excludes cash flows from investing activities.
The free cash flow to equity is the cash reserve that is left after the reinvestment of the capital.
The free cash flow to a company is the amount of cash derived from operations and is calculated after the payment of depreciation, expenses, and taxes. This is primarily used for financial valuation and determines a company’s profitability.
This shows the overall change in cash flow from one accounting year to another.
Functions of Cash Management:
Inventory management ensures to clear the blockage of any trapped sales which leads to the higher stock-in-hand. As increased stocks in inventory indicate decreased levels of liquidity, by effective fund management, companies can aim to clear out existing stocks which will ensure inflows of cash.
Generally, after a credit sale, a company records an entry of sale; however, the payment of the same is often in the pending status. Cash management plays the function of effectively paying all the bills receivables to remove any shortage of liquid cash.
Payables are the company’s liability when purchasing any items on credit. Sometimes organisations obtain loads from lending institutions or banks and are liable to repay within a stipulated time. Hence, effective fund management ensures that the repayment is made on time, avoiding any penalties or compensatory interest.
The primary essence of cash management revolves around factors like avoidance of cash crunch and insolvency. Moreover, this can also be used to invest in shorter-term instruments like government securities to increase the value of money.
Investment Management Objectives
1. Assess and manage risk
Investment managers must assess the amount of risk they’re willing to take and how to manage it on an ongoing basis.
2. Establish goals
An investment manager will help you determine your financial objectives and create a strategy to reach them
3. Select investments
With a deep understanding of different asset classes, the manager will choose appropriate investments for the investor’s needs.
4. Monitor progress
The manager will track market conditions and adjust the portfolio accordingly to maximize returns while mitigating risks when necessary.