Effective Management Of Working Capital Policy Essay examples

Effective Management Of Working Capital Policy Essay examples

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1-1 Introduction

The purpose of this chapter is to present the background of the research problem and how we creating our research question. The delimitation 's, research gap and the expected role that the study can bring will be tested in the later part of the chapter.

1-2 Nature of the problem

Actually, most of the recent finance researchers have generally focused on large size companies deep understanding of long-term financial decisions, which include investments types, the capital source of fund, earnings dividends or corporation assessment decisions. On the other hand, short-term assets and liabilities are very important elements of total assets and must to be carefully examined. Managing of these short-term assets and liabilities needs a deep understanding, where those factors affecting directly the working capital management which play a critical role in an enterprise’s cost-effectiveness and risk as well as its value (Smith, 1980).
Effective management of working capital policy is very significant in the whole enterprise policy that leads to raising enterprise total value. Enterprises trying most of the time for keeping an ideal level of working capital that maximizes enterprise value (Deloof, 2003; Howorth and Westhead, 2003; and Afza and Nazir, 2007). from a different point of view, from the perspective of a Chief Financial Officer (CFO), working capital management is a very clear and direct concept of ensuring the capability of the enterprise to finance the difference between short-term assets and short-term liabilities (Harris, 2005).
In fact, working capital management has become one of the most critical problems in enterprises, but the difficult situation comes from that many financial managers are unable to fi...

... middle of paper ...

...Es over the time span 2011-2014. By testing this relationship, we intend to investigate the determinates of working capital policy. Secondly, we want to test the theory behind the risk/return trade-off and see if risk increases with an aggressive policy. That will lead us to answer the following questions: -
1. Determine the factors affecting the working capital requirement.
2. Determine the factors affecting the behavior of cash conversion cycle.
3. Determine the effect of independent factors that explain the working capital requirement on working capital management efficiency.
4. Determine the effect of independent factors that explain the behavior of cash conversion cycle on working capital management efficiency.
5. Provide recommendations that helping Egyptian SMEs enhancing the efficiency of working capital management.

1-6 Research variables

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