Working capital management

Working capital is the amount of capital which is readily available to an organization, that is, working capital is the difference between resources in cash or readily convertible into cash (Current Assets), and amounts payable (Current Liabilities). As a result, the decisions relating to working capital are always current or short term decisions.

The goal of working capital management is to ensure that the firm is able to operate, and that it has sufficient cash flow to service long term debt, and to satisfy both maturing short-term debt and upcoming operational expenses. In so doing, firm value is enhanced when, and if, the return on capital exceeds the cost of capital.

Working capital management decisions are therefore not taken on the same basis as long term decisions, and working capital management applies different criteria in decision making. The main considerations are: cash flow or liquidity and profitability or return on capital, of which cash flow is probably the more important.

Guided by the above criteria, management will use a combination of policies and techniques for the management of working capital. These policies aim at managing the current assets(generally cash and cash equivalents, inventories and debtors) and the short term financing, such that cash flows and returns are acceptable.

14. Translate from Russian into English:

сумма капитала, оборотные средства, текущие обязательства, предстоящие текущие расходы, наличные денежные средства, управление оборотным капиталом, суммы к уплате, принятие решений, ликвидность, прибыль на капитал, материально-производственные запасы, выплачивать проценты по долгосрочным долговым обязательствам.

Дата добавления: 2015-08-27