Objectives of working capital management
In this lesson, you'll learn the fundamental objectives of working capital management and why they matter for exam success in FM and MA papers. Working capital management balances two competing goals: ensuring profitability for long-term survival and maintaining sufficient liquidity to meet day-to-day obligations.
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In this lesson
- 0:00 Objectives of working capital management
- 0:10 Why profitability alone isn't enough
- 0:43 The liquidity and profitability conflict
- 2:35 How inventory and credit affect cash flow
About this lesson
You'll discover why this balance is critical—a business can be profitable yet still fail if it cannot manage its cash flows effectively. The video explores the core tension between liquidity and profitability. High investment in working capital improves your cash position but may reduce efficiency and profitability, while low investment boosts profitability but creates cash flow risk. Through practical examples—such as increasing inventory levels or offering customer credit—you'll see how decisions that drive sales and profits can simultaneously tie up cash and create liquidity problems. The key takeaway is that financial managers must find the right balance for their specific organisation, recognising that there's no one-size-fits-all approach to managing working capital effectively.
Duration: 4m
Transcript
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