Question

In your own words explain what working capital management is and give an example of one way Organic Produce Corporation’s financial managers could improve the company’s working capital position.

Answer 1

Answer: Working capital management is the process of managing the relationship between the short term assets as well as short term liabilities of the company in an effective way. It aims to make sure that the company is having enough funds for the purpose of meeting its operational expenses and at the same time take care of the short term debt repayment liabilities that may occur in the near future. Therefore, it is all about finding the right balance between current assets and liabilities in an effective as well as efficient way. Management of working capital usually includes management of accounts receivable, accounts payable, inventories as well as cash. The working capital of the company can be calculated by subtracting current liabilities from the current assets of the company.

There are plenty of ways through which organic produce corporation can manage its working capital in an effective manner. One of the most important way includes 'efficient management of inventory'. The financial managers are responsible to make sure that the working capital position of the organization is intact and company is not running short of its short term payment obligation or any of its operational expenses. Most of the operational expenses, an organization might incur relates to inventory management. Therefore, the manager should avoid overstocking of inventory, finished goods must be sold as soon as possible, cutting down staff cost is yet another way through which efficient management of inventory and thus working capital can done.