Working Capital Management Case Study

Working capital is a financial term which is shows operating liquidity available to a business, or governmental other entity, including organization entity. Along with fixed assets such as building and machinery, working capital is considered a part of daily operating capital. Net working capital is calculated by current assets minus current liabilities. The decisions relating to working capital and short term financing are referred to as working capital management. These process managing the relationship between the organization short term assets and its short term liabilities. The goal of working capital management is to ensure that the firm is able to continue its operations and that it has sufficient cash flow to satisfy both maturing short-term

They classify three different categories of WCM: aggressive, moderate (or matching) and conservative. Aggressive management is when working capital investment and financing is characterized by high risk and high returns. Moderate, or matching, policy entails lower risk and returns, and finally conservative strategies have the lowest risk/return ratios. To effectively manage working capital, the company needs to direct its attention to four different short-term assets – accounts receivable, inventories, cash and short-term

This part of the thesis will introduce different studies conducted around the effects of working capital management, in particular the impact on cash conversion cycle or net trade cycle, on corporate profitability.

Industry effect on working capital Working capital management can be very different across industries as the needs and policies vary heavily from industry to industry. Study the different strategies employed by companies to manage their working capital across different industries. Their purpose is to find out if industries that tend to have aggressive investment policies also follow aggressive financing strategies. They also study the stability of working capital policies over time. The results of show that different industries follow significantly different strategies in their working capital management, and that these strategies remain stable relative to each other over time. There is also a strong leaning towards that companies that are more aggressive in some areas are more conservative in others. Another study, conducted by Filbeck and Krueger (2005) uses the annual reports of working capital management by CFO magazine to analyze whether there are differences of managing working capital across industries. They discover that there are significant differences