Need for Working Capital Management

Financial crisis adds companies financing problems and creates problems for the
companys daily operations. Working capital management (WCM) is an important
part of finance of a company. During the last financial and economic crisis in
2009 companies negotiated new prices with suppliers and inventories was
decreased
because of reduced sales. When growth again started after this crisis companies
faced problems because they do not have the capacity to produce enough
products because of the cost savings. If there is simultaneously demand for more
liquidity, low stock levels and financial institutes will not lend money as easily as
they did back in 2008, there could be so called working capital trap. (Hofmann et
al. 2011, pp. 4-5) Interest towards WCM has increased because of the last
financial
crisis (Marttonen et al. 2011, p. 2). WCM has though highlighted by many
companies. Because of the economic downturn firms are now forced to find new
ways to secure adequate cash flows and ensure sufficient liquidity. By exploiting
effective working capital management an enterprise can release capital for more
important targets, decrease financial costs and hence improve companys
profitability
and liquidity.
Cash management and WCM are important for companies. WCM can make a
major impact on the liquidity and profitability of the company. companies should
concentrate more on cash flow than profit because lack of cash will affect
destruction of the company very quickly. This amplifies in recession. The right
way towards good cash management is to develop the visibility of working
capital (WC).
Component of WCM
Basic level of calculation models are
A Product, A Company, A Corporation, value chain used and time period (a
month, a quarter, a half-year or a whole year)
For designed using purposes these time periods is sufficiently frequent for
making

future forecast and for seeing the changes in situations.

WCM in Value chains

Effect of financial crisis on WC

Net working capital on Balance sheet

Net working capital management or working capital management contains all

viewpoints of the administration of current assets and liabilities.
The target for this working capital management calculation model is to create a
practical tool for calculating value chains working capital and cash flows

WCM in Chennai Port Trust

Tools and Techniques for analysis
Comparative financial statement
Ratio Analysis
Common Size Balance Sheet
Comparative Financial statement
Current Assets Accrued interest,sundry debtors, inventory, cash and bank
balances, loans and advances
Current Liabilities All liabilities and provisions
Ratio Analysis
Current Ratio Between Current asset and current liability

Quick Ratio Between Liquid asset and current liability

Inventory Turnover Ratio Between sales and inventory
Debtor Turnover Ratio Between Sales and Debtors
Creditor Turnover Ratio Between Sales and creditors

Common size Balance sheet

Components of WCM in port
Assets
Reserves and surplus
Capital reserves
Revenue reserves
Statutory reserves
Loan funds
Government loans
Stores materials, cash and bank
balances

Liabilities
Current liabilities
Sundry creditors

Synopsis
To analyse working capital position in port trust
To determine relationship between current asset and current liability
To analyse the profitability of the company
To examine liquidity position of firm
To find out the financial performance of the firm