Working capital management is concerned with administration of all the current assets and current liabilities. It is basically associated with determining the optimal levels of investment in various current assets. It is to ensure that neither excessive nor under estimate working capital forecast. Each element of working capital should be periodically examined and it should ensure that the intrinsic value of all elements of current assets is maintained intact. In other words, a firm should neither have too high nor too low investment in working capital because both of them have tendency to afford the profitability of the firm adversely. Generally, current ratio, quick ratio, debtors/creditors velocity, etc. are helpful to determine the optimum level of working capital. It is to ensure that the firm’s liquidity position is quite sound so that it is able to honor the short-term financial obligation of sundry creditors and other creditors.
