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Working Capital Management - Essay Example
Pages 15 (3765 words)
The aim of this paper is to show what working capital management is in the context of a financial institution. The paper will also demonstrate how management of an organization can control the working capital so as to maximize profitability…
The paper tells that working capital for any firm is defined as the amount of money or current assets required by an organization for its everyday running. Liquidity in a business ensures that it remains solvent and that all its operations can be successfully undertaken. Cash, therefore, is a crucial part of the survival of any business organization. For this reason, sound financial management policies are paramount to the success of any business. Working capital management also involves providing finances for investment in the short term assets that are essential for the day to day running of the organization. They include reserve for unexpected costs, pre paid costs like operating licenses and insurance policies. Cyclic or seasonal financial needs should also be met. A clear example is the excessive spending of credit card holders during festive seasons like Christmas, where the banks experience an increase in lending. Good financial management will ensure that the banks can give as much money as possible. There is also a delicate balance between too much solvency and profit maximization of an institution. Citibank, the principal operating subsidiary of Citicorp are among the biggest financial institutions in the world. Citibank has many international branches especially in south East Asia. In 1983, Citibank’s country manager for Indonesia, Melhi Mistri, was faced with the task of increasing profitability while managing the banks operating capital in line with reviews of its operating budget. ...