Working Capital Management in Selected Fertilizer Company With Special Reference to NFL Kribhco Chambal Fertilizers and Chemicals Limited

Abstract

In the fast moving business world, firms are highly competing among them. Generally, we believe that finance covers three main topics that are capital budgeting, capital structure and working capital management. Capital budgeting and capital structures are associated with investment decisions while working capital management is the functional area of finance. It involves the relationship between a firm s short term assets and its short term liabilities like managing inventories, accounts receivable and payable, and cash (Gitman, 2005). newlineThe main purpose of any firm is to maximize profit. But, maintaining liquidity of the firm also is an important objective. So, liquidity and profitability are both the two different sides of same coin. The problem is that increasing profits at the cost of liquidity can bring serious problems the firm. Thus, strategy of firm must maintain a balance between these two objectives of the firm. Dilemma in working capital management is to achieve desired trade-off between liquidity and profitability. Referring to theory of risk and return, investment with more risk will result to more return. Thus, firms with high liquidity of working capital may have low risk and low profitability. Conversely, a firm that has low liquidity of working capital faces high risk this result leads to high profitability. Although this might increase profitability (due to increase sales), if may also adversely affect the profitability if the costs tied up working capital exceed the benefits of holding more inventory and / or granting more trade credit to customers. newlineWorking Capital is the flow of ready funds necessary for the working of a concern. It comprises funds invested in Current Assets , which in the ordinary course of business can be turned into cash within a short period without undergoing diminishing in value and without disruption of the newlineorganization. Current Liabilities are those which are intended to be paid in the ordinary course of business within a short time. Every company has to make arrangem