One can probably attribute a large number of business failures in recent years to the inability of financial managers to plan properly and control the current assets and current liabilities of their respective firms. Shortage of funds for working capital as well as uncontrolled over-expansion of working capital have caused many businesses to fail and in less severe cases, has stunted their growth. Especially, in small firms, working capital management may be the factor that decides success or failure; in larger firms, efficient working capital management can significantly affect the firm’s risk, return and share price. Working capital in an enterprise is like blood in life. An enterprise cannot be run without appropriate working capital. Not only working capital is enough, but also there should be proper management of working capital because it is very important for the success of an enterprise and for maximizing the value. Cash and financial budgets are the major tools for the management of working capital. The inefficient working capital management will lead to loss of profits in the short run but it will ultimately lead to the downfall of the enterprise in the long run. A deeper understanding of the importance of working capital can lead not only to material savings in the economical use of capital but can also assert in furthering the ultimate aim of business. An excessive investment in working capital will lower the rate of return while inadequate investment will hamper the solvency position and growth, thereby affecting the smooth operation of the business. However, stock of the importance of working capital for a business enterprise can be taken only when certain criteria of business efficiency are evolved and the role of working capital vis-à-vis fixed capital is adjudged in relation to them. A reasonable rate of return on investment and a good reputation in the business world can be suggested as the two meaningful criteria for viewing the efficiency of a business enterprise. In earning a reasonable rate of return the functional, complementary, proportional, and technical roles of working capital play a great part.
For Citing this Article use:
- Ul, I. Z. (2014). Working capital management of selected small-scale industries in Jammu and Kashmir state with special reference to Kashmir division.