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Essay / Research Paper Abstract
A 6 page paper discussing the need to limit working capital. At first glance, increasing working capital over time would seem to be advantageous for the organization. While the company needs to seek to increase revenues over time, increasing the amount of working capital available to it is not always in its best interests. The financial manager needs to know how to allocate capital, including limiting the amount of working capital that the company carries. Bibliography lists 5 sources.
Page Count:
6 pages (~225 words per page)
File: CC6_KSfinWrkCap.rtf
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Unformatted sample text from the term paper:
working capital over time would seem to be advantageous for the organization. While the company needs to seek to increase revenues over time, increasing the amount of working capital
available to it is not always in its best interests. The financial manager needs to know how to allocate capital, including limiting the amount of working capital that the
company carries. Defining Working Capital Working capital flows in a cycle. At the beginning there is cash that "may be converted into
equipment and raw materials. Additional cash is used to convert the raw materials into inventory" (Corporate Finance, n.d.). As the late Mary
Kay Ash of Mary Kay Cosmetics was fond of saying, "nothing happens until someone sells something" (Ash, 1984). The sale of inventory can result in increased cash available to
the company or increased accounts receivable and the promise of payment at some time in the future. Regardless of the route the sale travels, eventually the sale is converted
"back to cash, completing the cycle. The goal is to have more cash at the end of the cycle than at the beginning" (Corporate Finance, n.d.). The length
of the cycle is arbitrary and is defined according to the assessment needs of the organization. It can be assessed in terms of a month, quarter or year. Limiting
Working Capital So why should a business want to limit the amount of working capital it carries on its income records? Certainly
the overall goal is to increase the level of cash available to the business, either through increased sales, cost reductions or a combination of both approaches. Increasing the level
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