The goal of working capital management is to ensure that a firm is able to continue its operations and

that it has sufficient ability to satisfy both maturing short-term debt and upcoming operational expenses.
The management of working capital involves managing inventories, accounts receivable and payable,
and cash.

l: According to Weston & Brigham - “Working capital refers to a firm’s investment in shortterm assets,
such as cash amounts receivables, inventories etc.

2. Working capital means current assets. —Mead, Baker and Malott

3. “The sum of the current assets is the working capital of the business” —J.S.Mill

Working capital management is a vital part of financial management in companies. Working capital
presents the financial health of a company and it is connected to profitability and liquidity (Sagner, 2014)
to Smith K. V, “Working capital management is concerned with the problems that arise in attempting to
manage the current assets, current liabilities and the interrelationship that exist between them”.
According to Weston and Brigham, Working capital generally stands for excess of current assets over
current liabilities. Working capital management therefore refers to all aspects of the administration of
both current assets and current liabilities”.

The objective of working capital management is to manage the company’s current assets and liabilities in
a way that a reasonable level of working capital is maintained.

To run an operation of a company smoothly, adequate amount of working capital is extremely essential.
Effective management of working capital can facilitate utilization of fixed assets advantageously, for
reassurance of the company’s long- term accomplishments and accomplishment of long term objectives
of maximization of the stakeholder’s funds. Poor management of cash may result in loss of not only cash
concessions but that of goodwill as well owing to non-payment of payables by predetermined time.
Inadequate inventories may be the major reason of manufacturing delays and it may force the company
to procure raw materials at inflated prices. Similarly facility of credit sale is also extremely necessary for
increase of sales.

Working capital management is a very important component of corporate finance since it affects the
profitability and liquidity of a company. Its management may have both negative and positive impact on
the firm‟s profitability, which in turn, has negative and positive effect on shareholders‟ wealth. This
study aimed to provide empirical evidence on the effects of working capital management on firm
profitability: Investors all over the world put their money into a business with a view to having some
return on investment irrespective of whether it is in a proprietorship, partnership and corporations. In
small and medium businesses, owners have direct or indirect control over the management of the
business so, they themselves are responsible for the profit and loss. On the other hand, in the large
multinational companies, themanagement of the company manages the affairs of the company on
behalf of owners but owners want management to take such decisions which will give positive signal to
market, increase the value of the firm, enhance profitability and maximize holding period return. The
heart of corporate finance literature is long term investment, capital structure and different valuation
methods. These have been the focus of intention for many researchers in the past. In short it concerns
the long term financial planning or decisions. On the other hand, it is believed that financial decisions of
short term assets and short term liabilities management also influence the stock price. These decisions
are vital because they demonstrate the financial stability of the firm and the market which develops
perception about the firm accordingly (Afza and Nazir,2008). An efficient working capital management
can create value for stakeholders while a deprived policy or inefficient management might affect the
business in an appalling way and might cause a financial distress.

Working capital management involves planning and controlling current assets and current liabilities in a
manner that eliminates the risk of incapability in meeting short term obligations on one hand and on the
other hand avoid undue investment in these assets (Eljelly, 2004). Lamberson (1995) argues that working
capital management has become one of the most important issues in organizations, where many
financial managers find it difficult to recognize the important drivers of working capital and the optimum
level of working capital. As a result, companies can curtail risks and develop their overall performance if
they can understand the role and determinants of working capital. The relationship between current
assets and current liability items is called working capital of the organization.