Out of the two types of investments, investing in the current operations of the business is more difficult and is a continuous process with more components of assets rather than the first case where the investment is one time or long-term in the business process.
Fixed
Asset Investments Vs Current Asset Investments
Out of the two types of
investments, investing in the current operations of the business is more
difficult and is a continuous process with more components of assets rather
than the first case where the investment is one time or long-term in the
business process. Further, purchase of fixed assets can only be by long-term
sources of funds. But both long-term as well as short-term sources of funds are
used to finance current assets. If so, what is the ratio of both long-term and
short-term sources? Even if we decide the ratio, is it a fixed one? The answer
is no. It is flexible on the basis of season like operational cycle, production
policy, credit term, growth and expansion, price level changes, etc. Improper
working capital management can lead to business failure. Many profitable
companies fail because their management team fails to manage the working
capital properly. They may be profitable, but they are not able to pay the
bills. Therefore management of working capital is not very easy and the
financial manager takes very important role in it. Hence, the following
guidelines regarding concepts, components, types and determinants will be very
useful to a financial manager.
Tags : Financial Management - WORKING CAPITAL MANAGEMENT
Last 30 days 524 views