Efficient WCM Performance

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working capital requirements vary from firm to firm and across the periods. Inefficiency in working capital requirements may ultimately result in industrial sickness. The success of an organization is a result of efficient WCM. Working capital management components are managed adequately for the smooth running of an organization. It is also necessary for controlling liquidity risks and profitability risks. Efficient WCM is a key component of financial management in all organizations. In so many countries, Study of firm’s WCM performance is published by CFO Magazine every year and a wide amount of literature explains its significant impact on firm’s liquidity, profitability and solvency. Now days, profitability is a very hot topic that is under …show more content…

The ability of a firm to pay current obligations when they become due is basically concerned with the cash-producing ability of a firm and generally current obligations are fulfilled with cash that is generated from short term assets. There is a distinction between profitability and liquidity of firms according to Profitability contra Liquidity Principle. Liquidity was considered a major determinant of banks profitability. Also classified as controllable bank specific factor. Numerous studies have been conducted to determine banks profitability. These studies used a group of countries. Profitability of firms can be enhanced by the efficient management of working capital like in case of Nordic firms, it is considered really hard to convert best policy aims on WCM into reality. Working capital management is considered less essential in state of economic boom but in case of economic recession; working capital has to be managed by firms. Working capital management can also be enhanced by the optimal utilization of internal …show more content…

Basically, it relates to decisions regarding appropriate investments in current assets he tells that for a large sample of Belgian firms working capital attributes to firm’s current assets which have significance influence on a firm’s profitability. CCC is the common measure of Working capital management. Which shows investment in inventory, and customer accounts and credit which firm take from its suppliers? It measures the time that a firm takes to convert its raw material into finished goods. Effect of CCC on the profitability of the firm has been carried out by many researchers (Deloof, 2003) (Lazaridis, 2006) the aim of these study is not just to see the relationship between profitability and WCM but they also examine the causalities between them. (Deloof, 2003)Few studies has also been carried out in Africa but these were about beverages and food industry which considers one measure that is operating profit excluding other variables like CCC. (Kaur, 2010) argues that working capital management involves such management decisions that affect the efficiency and size of the working capital required. Every type of business either small or large needs working capital to run its business so the management of working capital is a major concern for the financial stability of every type of

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