Appraisal of Working Capital Management in Asaka Cement Plc by Shehu Mohammed Hashidu
CHAPTER ONE
INTRODUCTION
1.1 Background of the Study
Businesses need cash to survive; Cash is needed to invest in fixed assets, pay suppliers and employees, fund overheads and other fixed cost and pay tax due to the government. Most businesses use much of their cash resources to finance investment in working capital. Managing working capital effectively is therefore a vital part of making sure that business has enough cash to continue (Oliver, 2009). Working capital can be regarded as an engine of a business, it is the cash needed to pay for the day-to-day operation of the business (Jorne, 1992). The continuity of a business existence largely depends on the management of its working capital; inadequate working capital enervates the operations of a business.
Working capital is current assets (cash, receivables, inventory, etc.) minus current liabilities (debt obligations due within one year). Working capital may also be viewed as the amount of a business 's current assets provided (financed) by long-term debt and/or equity (Raymond 2005).
The phrase Working capital Management is a combination of two terms, i.e. Working capital and management. Working capital can be regarded as an engine of a business. It refers to the resources of the firm that are used to conduct daily operations and make a business successful. Management on the other hand, is the process involved in acquisition, administration and utilization of organizational resources to achieve the desired objectives with maximum efficiency. Put the two together, “working capital management could be said to be the effective acquisition, disbursement and utilization of both current assets and current liabilities. Effective utilization of manpower resources is used in determining the ratio of current assets to current liabilities.
Working capital management therefore involves the management of both the current assets and current liabilities as they have direct relationship with each other. It can also be
INTRODUCTION
1.1 Background of the Study
Businesses need cash to survive; Cash is needed to invest in fixed assets, pay suppliers and employees, fund overheads and other fixed cost and pay tax due to the government. Most businesses use much of their cash resources to finance investment in working capital. Managing working capital effectively is therefore a vital part of making sure that business has enough cash to continue (Oliver, 2009). Working capital can be regarded as an engine of a business, it is the cash needed to pay for the day-to-day operation of the business (Jorne, 1992). The continuity of a business existence largely depends on the management of its working capital; inadequate working capital enervates the operations of a business.
Working capital is current assets (cash, receivables, inventory, etc.) minus current liabilities (debt obligations due within one year). Working capital may also be viewed as the amount of a business 's current assets provided (financed) by long-term debt and/or equity (Raymond 2005).
The phrase Working capital Management is a combination of two terms, i.e. Working capital and management. Working capital can be regarded as an engine of a business. It refers to the resources of the firm that are used to conduct daily operations and make a business successful. Management on the other hand, is the process involved in acquisition, administration and utilization of organizational resources to achieve the desired objectives with maximum efficiency. Put the two together, “working capital management could be said to be the effective acquisition, disbursement and utilization of both current assets and current liabilities. Effective utilization of manpower resources is used in determining the ratio of current assets to current liabilities.
Working capital management therefore involves the management of both the current assets and current liabilities as they have direct relationship with each other. It can also be
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