International Working Capital Management

Working capital management in international context involves managing cash balances, account receivable, inventory, and current liabilities when faced with political, foreign exchange, tax, and liquidity constraints. It also encompasses the need to borrow short-term funds to finance current assets from both in-house banks and external local and international commercial banks. The overall goal is to reduce funds tied up in working capital. This should enhance return on assets and equity. It also should improve efficiency ratios and other evaluation of performance parameters.

The Working capital management is an integral part of the total financial management of an enterprise that has a greater impact on Profitability, Liquidity and Overall performance of the enterprise irrespective of its nature. In fact, working capital is a circulatory money investment that takes place right from the input stage to output. Management of working capital is complicated on account of two important reasons, namely, fluctuating nature of its amount, and a need to maintain a proper balance between current assets and non-current assets in order to maximize profits. The importance of working capital in an industry cannot be over stressed, as it is one of the important causes of success or failure of an industry. Whatever be the size of the business, working capital is its life-blood. Working capital constitutes the funds needed to carry on day to day operations of a business, such as purchase of raw materials, payment of wages and other expenses. For running a business an adequate amount of working capital is essential. A firm with shortage of working capital will be technically insolvent. The liquidity of a business is also one of the key factors determining its propensity to success or failure. This calls for a systematic and integrated approach towards utilizing a company’s assets with maximum efficiency. Working Capital management is about the financial and commercial aspects of purchasing, marketing, inventory, credit, royalty and investment policy.