Title: Working Capital Management Importance | Top 4 Reasons
Headings: Working Capital Management Importance
Working Capital Management Importance
Why is Working Capital Management Important?
Top Reasons for Working Capital Management
#1 – Improvement in the Credit Profile and Solvency of the Company
Example
#2 – Use of Fixed Assets Efficiently
Example
#3 – Ability to Face Crises
Example
#4 – Expansion
Example
Conclusion
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Content: In the last month, it purchased the assets for increasing productivity and sales by borrowing the money from the market. The company, however, didn’t look into its working capital position. So even after purchasing the fixed assets, due to a lack of working capital, the company is unable to utilize its fixed assets properly to increase its production. Also, the company has to incur the depreciation charges and interest on the borrowed capital unnecessarily even though it is not using the fixed assets. If the company had managed the working capital properly, then this situation would not have arrived. In case there is sufficient working capital, fixed assets can be used properly, and production can be increased, thereby increasing the revenue. This is the perfect example of how the management of working capital can lead to effective use of the fixed assets of the company. #3 – Ability to Face Crises
In case there is proper management of the working capital, then the business concern will be able to face crises properly during the emergency period like depression. Generally, the companies keep don’t have an adequate amount of working capital in case of an emergency, which will affect the business negatively in can any emergency occurs. Example
There are two companies ABC Ltd and XYZ Ltd, in a town competing with each other.