Managing Working Capital for Industrial Firms

Why do Industrial firms in developing countries go under? Is it because of high cost of production or liquidity problems? These are questions that linger in the minds of researchers. Working capital constitutes a great part of the wealth of an institution. In manufacturing firms, working capital constitutes over ninety percent of the total value of the firm's resources. Therefore, working capital is the blood stream of any firm, industrial or otherwise. Can finance managers ignore the importance of working capital? They can only do it at their own peril. Thus, Finance managers spend most of their time on managing working capital. Aggressiveness and conservativeness always come into play when managing working capital. A finance manager may opt to adopt any of the two approaches. If aggressive investment approach is used, then, minimal level of liquid assets will be used versus productive assets. However, if conservative investment approach is adopted then the firms use more of liquid assets versus productive assets. Whatever approach may be adopted the managers must ensure that the profitability level of the firm is highest and no risk of the firm going under.