Thursday 16 February 2017

What is working capital management

working capital management



A Working capital management is the process of managing these short-term assets and liabilities to ensure the company has adequate liquidity to operate smoothly. Actually, This is essential for enterprise business continuity can be maintained, errors in managing working capital resulting in business activities may be hindered or halted altogether. Working capital is a part of capital functions within a company.


Functions


Authors categorize within 2 (two) function:

  1. Support the activities of production and sales by bridging the gap between the time, i.e. the expenditure of money by the time the main reception.
  2. Close the needs are fixed and needs that have nothing to do directly with production-production and sales.

In general the net working capital is defined understanding property lancer is reduced by the liabilities of the company must be met immediately.

Concept of working capital management

To see more understanding working capital, then the following will be given three concept understanding capital work as the following
  1. Quantitative Concept
  2. The qualitative Concept
  3. Concept of Functional

Quantitative concept also called Gross Working Capital, basing on the quantity of funds that are embedded in elements – elements of current assets and are reflected in the company's balance sheet reports which include cash, securities, short term accounts receivable and inventory. Working capital in this sense is often referred to as gross working capital.

The usual qualitative concept also suggests that the concept of net working capital is defined as current assets with debt difference smoothly. Thus a portion of the assets must be provided to meet the obligations financial due. Part of the current assets should not be used to finance the company's operations to maintain liquidity. Therefore, the working capital according to the qualitative concept this is a portion of current assets that can really be used to finance the company's operations without harming the liquidity of the company.

Working capital cycle

The notion of working capital based on the functional concept is pressed on the functioning of the existing funds in the company in an effort to earn income. According to this concept that not all the funds needed by the company in one period will generate income in the period in question, but there are most funds that do not generate profit on the period concerned, but these funds will turn a profit in the period-a period of concerned company in the period accounting that could generate revenue in the period the use of these funds in accordance with the main purpose of the establishment of the company.

Instead of the said funds not working capital is funds that do not generate revenue in the period running, then the income does not match the goal the establishment of the company.
In general the working capital is current assets whole used in daily operations, such as purchasing raw materials, advance payment of wages/salaries of employees, labor and so on. The thing where the funds have been issued is expected within a period not too long in the company's sales results through.

The factors that affect working capital


For a company that has just started, working capital expenditures can be described as not for treasures still good or not direct must be issued continuously before the sale proceeds can be billed and received from subscriptions. So previous working capital is the amount of continuous bridge between when spending money to acquire materials (services) with the sales receipt.

To find out how good working capital for the company, then it should meet some of the factors that affect working capital:
  • The nature or type of the company
  • Time required to produce/acquire the goods that will be sold, as well as the price of unity of the item.
  • The terms of the purchase of goods or merchandise
  • Inventory turnover rate

Types of working  capital management

While for the type of working capital in each company, that basically working capital that must remain at the company to perform its functions. Working capital can be distinguished into two groups namely:

1.    Permanent working capital (Permanent Working Capital)

Permanent working capital (Permanent Working Capital) doped of two types namely:
  1. The primary working capital (primary working capital) is the amount of working capital minimum that must exist at the company to ensure the continuity of his efforts.
  2. Working capital normally (normal working capital) is the amount of working capital needed to organize broad normal production. Here is the normal sense in a dynamic sense. When a company such as in 4 or 5 months average monthly production has 1000 units then it can be said the extent of the production of face is 1000 units. When later it turns out that over the next 4 or 5 months extensive production average monthly 2000 units, then the widespread production of the normally even then changed to 2000 units.

2.    Working capital variable (variable working capital)


I.e. working capital of which there are changed to suit the circumstances and changes in working capital is differentiated into:
  1. Seasonal working capital (seasonal working capital), namely the working capital the amount varies due to the fluctuations of the season.
  2. Cyclical working capital (cyclical working capital) working capital change – number of foxes due to fluctuations of the season.
  3. Working capital emergency (working capital) working capital change magnitude – change because of an emergency that previously unknown for example, the existence of a labor strike, flood, sudden changes in economic circumstances.

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