Page 1 of 11

European Journal of Business &

Social Sciences

Available at https://ejbss.org/

ISSN: 2235-767X

Volume 07 Issue 02

February 2019

Available online: https://ejbss.org/ P a g e | 285

A Study on the Practices Related To

Working Capital

Name : Mahak

Designation : Student of m.com final year

Ugc Net qualified in July 2018

ABSTRACT

Working capital is an integral part of the financial management where

financial activities and investment of short term are mostly related.

Working capital of an organization is very important for the determination

of the liquidity of that organization. The role of working capital in the

corporate finance management is considered as very useful.

An important task of the management related to the working capital is to

minimize all kinds of the risk factors by properly controlling and managing

the current assets and liabilities resulting in avoiding the large quantity of

investment related to these assets.

Working capital management plays an important role in affecting the risk

management and profitability of an organization ,hence, more care should

be done while the process of managing the short-term assets and

liabilities. The current paper highlights the practices related to the working

capital.

Page 2 of 11

European Journal of Business &

Social Sciences

Available at https://ejbss.org/

ISSN: 2235-767X

Volume 07 Issue 02

February 2019

Available online: https://ejbss.org/ P a g e | 286

KEYWORDS:

Working, Capital, Organization, Risk, Financial

INTRODUCTION

The process of maintaining the working capital of an organization is

performed by controlling the liquidity of that organization. It is very

important for the top authority of a firm/organization whether their firms

are going in the right way or not as sometimes, it is difficult to know the

flow of the firm.

To get the better functionality of the form, all the current components

like assets and liabilities are compared and proper technique of

controlling and managing the financial requirement of the firm if any

imbalance is observed between current assets and current liabilities of a

firm.

It is like an indication of the reduction in the growth of an organization if

any kind of the imbalance between the final outputs of the current assets

and liabilities is found. In that case, management has to perform some

serious actions in order to moderate the situation.

The level of profitability of an organization can be enhanced by

implementing effective policy related to the working capital. Higher

Page 3 of 11

European Journal of Business &

Social Sciences

Available at https://ejbss.org/

ISSN: 2235-767X

Volume 07 Issue 02

February 2019

Available online: https://ejbss.org/ P a g e | 287

percentage of the current assets is also an indicator of the decrease in

the profitability of an organization.

Also, a declination in the level of the liquidity of an organization is

observed if there are lower amount of current assets. The role of fund

flow is very significant in order to run a business for longer duration.

Production of large number of cash receipts is also an indicator for the

success of an organization.

In some cases, it is observed that the performance of an organization

tends to decline as a result of weaker financial management. Hence, the

problems related to the cash flows are evolved which also damages the

image of an organization in the market.

Generally, there are two ways of implementing the management

regarding the financial risks. In the first method, a diversification

planning is implemented which is firmly regulated by the top authorities

of the organization. In second method, the form is allowed to engage in

the financial transactions.

In the first scheme, the financial market is achieved by the firms thereby,

dealing with the earnings and their volatility. Hence, a method of direct

investment is proposed by the firms so that the level of the volatility can

be effectively minimized.