THE RELEVANCE OF WORKING CAPITAL MANAGEMENT IN A FIRM (A CASE STUDY OF METROCK INVESTMENT NIG). A RESEARCH PROJECT MATERIAL ON ACCOUNTING. A RESEARCH PROJECT MATERIAL ON ACCOUNTING
1.1 BACKGROUND OF THE STUDY
Working capital management involves not only the management of current assets but also the management of current liabilities and the relationship between the two. Time is the feature of all items making up working capital.
Working capital describes the assets and liabilities of a business that are related directly to its trading activities. Some of them are held to enable the business to function, such as debtors and creditors. They are the items in the balance sheet whole vale and nature change continuously, since they are turned over regularly in the course of normal trading. Working capital liabilities are those for which the business is most immediately at risk, hence, they are normally termed current liabilities. Working capital assets are those on which the business can call most easily: hence, they tend to be referred to as current assets.
Many businessmen control their working capital very carefully, they are aware that however high national profit is, survival and real success depend on whether profit materializes into cash and whether that cash is available when the business needs it. Controlling the working capital will be limited value unless it is exercised within a framework, which takes into account:
2. The way in which such assets are used.
3. The way in which the business chooses to finance its activities.
Without adequate cash, a business cannot exist. For this simple reason cash is often described as the “Lifeblood of a business and its control the means of maintaining commercial health”. Liquidity is a pre-requisite for commercial life and cash management is as natural as staying alive: It is the Naira amount of a firm’s current assets including cash and short term investments, account receivable and inventories. These assets are regarded as liquid because they can be converted to cash within one year.