Literature Review on Working Capital Management

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The subject of working capital is one of the decision areas of every financial manager irrespective of the type, size and nature of his firm. A firm's working capital management involves management of the current assets, current liabilities and the inter relationship between the various components of the two.


This review is composed of only those studies which have been published and made available through books, journals, magazines and internet.
There is no doubt that working capital management is an indispensible part of everyday financial management of a firm. It is commonly understood that working capital requirement is related with the day to day operations of a firm and if the firm finds shortage of working capital, the firm is likely to face liquidity problem, which in turn affect the credit worthiness and the business as a whole. On the other hand, if the working capital position is too high, it does not sound good. Rather, it is a problem of lack of proper management. In other words, too much of working capital will affect the profitability by unnecessarily blocking funds in the current assets. Therefore, finding a proper balance between shortage and excess working capital is the key element of working capital management. The firm's liquidity and profitability are judged in terms of the working capital position of the firm. Jin Mcmenamin, in his famous book 'Financial Management: An Introduction', remarks that working capital is an important measure of liquidity and volume of working capital determines the risk level. The more the working capital, less is the chance of a firm's bills are not met for payment (Mcmenamin, 1999). ...
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