Capital management is a financial policy that aimed at guaranteeing maximum performance in a company’s cash flow. Its purpose is for the business to have sufficient means to satisfy its day to day obligations, as well as financial obligations in the short-term. The approach is to sustain a good ratio between the company’s assets and liabilities. Practical CM guarantees that the business can efficiently manage its expenses and debts without any risk to the essence.
Capital management is based on a thorough examination of assets and liabilities and achieving each individual component in order to improve efficiency and earnings. When capital management is done right, the company should see an increase in financial levels, unless it’s already working at maximum efficiency, which is unlikely in most cases.
Why Capital Management is Important?
Ensuring that the company possesses appropriate resources for its daily activities means protecting the company’s existence and ensuring it can keep operating as a going concern. Scarce availability of cash, uncontrolled commercial credit policies, or limited access to short-term financing can lead to the need for restructuring, asset sales, and even liquidation of the company.
The module includes:
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