Effect Of Working Capital Management As A Tool For Cost Minimization And Profit Maximization On Manufacturing Companies In Nigeria (A Case Study Of Pz Nigeria Plc, Nigerian Breweries Plc, Guinness Plc And 7up Bottling Company Plc)

ABSTRACT

Capital can be classified into two broad categories based on tenure viz; long-term capital and short-term capital. The long term capital of firms is committed to investment in fixed assets. It includes shareholders' funds and long-term loans. On the other hand, short-term capital is applied for investment in current assets such as marketable securities and short-term credits. Current assets are usually acquired very often in varying quantities depending on the demand structure for the firm's product. Each time a decision to acquire currents assets is taken, finance becomes inevitable. However, it does not necessarily mean that cash has to be paid each time an order for recurrent production input is placed, rather it implies that just like in the case of fixed assets, every decision on current assets has financial implications. For instance, a firm has to decide how much of the materials used for production of goods and services to be on credit or in cash-and-carry basis. It also has to determine what proportion of kits sales has to be on credit. Also, both the maximum and minimum stock levels of raw materials and work-in-progress (WIP) have to be determined and maintained at a given point in time. Orji (2001), refers to working capital as a firm's investment in current assets, cash, marketable securities, trade debtors and stock, less current liabilities used to finance the current assets. He stated that working capital management therefore means the planning and controlling of both current assets and current liabilities. It involves the administration of cash receivables, inventories, marketable securities and the current liabilities.