INTRODUCTION
The success of every business organization has on the volume of its working capital. The volume of a business working capital determines the extent of its operation. Adequate working capital fund enhances an organization’s operations, create room for expansion enable a business to plan and achieve targets. Hardly can a business operate optimally without adequate working capital fund to enable it operate successfully and overcome some business challenges.
Working capital is defines as the funds required to meet the day to day or operational needs of an organization (Olajide, 2010:5) Accountants defined as current assets to mean the difference between current assets and current liabilities (wood, 1995:33). Working capital is the already available fund or resource to maintain moral business operations (Nwachukwu, 1990: 124).
It is also seen as the excess of current assets over current liabilities. It is a measure of a company’s liquidity (Shiun and Siegel, 2010:509). Sources of working capital according to Harris, R.S (1989:71) are net income, increase in non-current liabilities, increase in stock holders equity and decrease in non-current assets. Other source of working capital fund are trade credits, bank finance, equity financing, debenture capital, available securities and lease finance.
Working capital management involves the relationship between a firms short-term assets and its short-term liabilities (Olajide, 2010:8). The goal of working capital management is to ensure that a firm is able to continue its operations and it has sufficient ability to satisfy both maturing short-term debt and upcoming operation expenses. The management of working capital involves managing inventories, accounts receivables and payable and cash.
REVIEW OF LITERATURE
There are two concepts of working capital; gross concept and net concept. Gross working capital, simply called as working capital refers to the firms investment in current assets (Pandey, 1995:665). Current assets are the assets which can be converted into cash within an accounting year (or operating circle) and include cash, short term securities, debtors, bills receivables and stock. Net working capital refers to the difference between current assets and current liabilities.
Working capital is the already available fund or resources to maintain normal business operations (Nwachukwu, 1990:124) it is defined by Olajide (2010:5) as the funds required to meet the day to day operational needs of an organization.
Working capital management according to Olajide (2010:8) involves the relationship between a firm’s short term assets and its short term liabilities. 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 receivables, accounts payable and cash. Therefore, implementing an effective working capital management system is an excellent way for many companies to improve their earnings. The two main aspect of working capital management are ratio analysis and management of individual working capital (Lucey, 2003:555).
The two concepts of working capital – gross and net are not exclusive, rather they have equal significance from management viewpoint.
The gross working capital concept focuses attention on two aspects of current assets. The consideration of the level of investment in current assets should avoid two danger point – excessive and inadequate investment in current assets. Investment in current assets should be just adequate, no more no less to the needs of the business firm.