WORKING CAPITAL MANAGEMENT
We may define working capital simply as cash that are available to the company or organization. Therefore managing the cash at hand depends entirely on utilization of funds and useful expenditure by whoever owns it. Working capital management who’s primary function is to ensure that the company will continuously have sufficient funds for allocation. For a company’s success can be evaluated extensively through its financial position, not only on a company asset but also in their liability. So if you are going to invest such as stocks in any company you should investigate on their financial position before investing.
We are not going into a detail and in and out of this stuff but we are going to view real examples of businesses who are expert in this field of working capital and how they have been so successful in working capital management to further understand its variable importance.
ACCRA Brewery limited – Is one of the largest brewing industry in Accra, Ghana shows their financial reports to the public in 2009, and how they have managed to control their working capital effectively. Their financial statement shows continuous flow of smooth and steady income, the financial report is in accordance with Financial Reports Standard using critical accounting estimation. Acquisition and liquidation of reports have been properly declared to the public to show transparency among its stock holders. Their property evaluation stated at cost less depreciation. Inventories of stocks including all expenses incurred in bringing them into safest location. To make sure they have been performing well, all taxes are paid and declared so that the government will not sue them for evasion.
The company has been exposed to financial risk including credit risk and foreign currencies and exchange rate. Risk management is carried out by the board of directors that provides written principles for overall financial risk. Credit sales are strategically used to take advantage of market opportunities. In Capital management they reported that they will ensure that the company will meet its debt before it’s due to maximize shareholders value because the company’s capital depends on the shareholders equity. This is how they allocate and manage their working capital. Dr. Charles Mensa Chairman thanks the public for their continuous support.
Ashanti Goldfield Company Limited (AGC) – An International gold mining company located in African nations: Ghana, Guinea, Tanzania and Zimbabwe. This Company has experience downfall and unexpected significant effect in working capital management. It was when the Group of 15 Central bank limits their order of gold into the market, this has brought financial crisis to the company. Some competitors find their way to decrease their price that overtaken Ashanti’s market dominance.
Thereafter there has not been any solution that the company has undertaken. Their accounting book goes negative. Until such time that the board has taken their time to arrange given solution to their situation. Nevertheless, none of their solution has been yet effective to consider the immediate financial crisis they have experienced. The company considered raising funds by selling their assets. The Geita mining in Tanzania will be considered for sale to meet their financial needs, But then again the sales of this asset have not been the primary solution to their financial crisis.
They have also asked for many consolidation offers but companies have not taken risk since the depreciation of gold price in the market and their limited distribution. No companies have been interested until the coming of Lonmin pic. Since then it took almost a year to finally break the long term gold price and the strategic merging of Lonmin pic. The term of Lonmin pic values includes an offer of shares at US including a US 0 million to conceal their working capital. They have also restructured the additional board of director to help with the concerns they have been facing. Going back to their financial reports show last February year 2011that the result shows stronger sales rather than the previous year since the new strategy was launch. This has proven a great deal of overcoming woes in mis-management of working capital and rising up against hindrances that a company may encounter.
From the two examples we have given above, shows that “Working Capital Management” techniques that they have used can promote financial stability and eliminate contagious risk in business. Even if you are an establish business does not guarantee a steady streamline of success. Working Capital Management thereby reduces the potential financial devastation if properly undertaken.
Credit:ivythesis.typepad.com
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