Working capital management - a business organizations success Essay

Working capital management - a business organizations success - Essay Example Working capital management is essential for a business organization's success and even mere survival. By focusing in this aspect, companies are able to ensure sufficient cash flow in order to settle maturing short term obligations and finance expected operational expenses (McClure 2008). Without efficient techniques in managing working capital, a company can show profitability but might be illiquid to settle its current liabilities thereby jeopardizing its relationship with creditors. Working capital management also covers the efficient collection of accounts receivable and sale of inventory in order to generate cash. The better the company manages working capital, the less money it needs to borrow. Holding excessive cash is also seen as inefficient because it can be used for investment which maximizes shareholder wealth. One of the best examples of companies which benefits from focusing on working capital management is computer giant Dell, Inc. The company's success can be directly attributed to its efficient inventory management system which eliminates excessive production. In contrast with typical manufacturers, Dell's production is tied up with customer demand enabling it to get rid of inventory holding cost.