Working Capital Management and Profitability
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Why is good working capital management essential to profitability?
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Solution Summary
The problem describes how good working capital management practices can increase profitability.
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Working capital are the funds representing short term assets. These include cash, cash equivalents, inventory, and accounts receivables. Managing these funds is an essential component of ensuring a firm's profitability and, indeed, its survival.
Effective working capital management involves several considerations. First, a firm must have sufficient cash readily available to pay accounts payables, short term notes, and other current liabilities and current portions of long term liabilities (such as interest payments). The firm must also not have too much cash on hand either as excess cash not earning interest ...
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