Title - Working Capital Management:
A Case Study of Air India Ltd
Table
of Contents
1.
Introduction
Management
is an art of anticipating and preparing for risks, uncertainties and overcoming
obstacles. An essential precondition for sound and consistent assets management
is establishing the sound and consistent assets management policies covering
fixed as well as current assets. In modern financial management, efficient
allocation of funds has a great scope, in finance and profit planning, for the
most effective utilization of enterprise resources, the fixed and current
assets have to be combined in optimum proportions.
Working
capital in simple terms means the amount of funds that a company requires for
financing its day-to-day operations. Finance manager should develop sound
techniques of managing current assets.
Important theoretical developments in finance
during the past decade have provided the potential for improved decisions in
business organizations. Unfortunately, developments have not been uniform
across all areas of financial decision making within and between business
organizations. Working capital appears to have been relatively neglected in
spite of the fact that a high proportion of the business failures is due to
poor decisions concerning the working capital of the firms. Working capital
management is also very important for firms in transition to privatization or
firms that are recently privatized. These firms have no culture of private
business management and they have no experience of business to business
co-operation, which mostly affects working capital. There is also a
far-reaching effect on the management when firms are strictly regulated and
owned by the government. If government owns business firms, the benefits and
costs of working capital management might be considered to be of a lesser
importance because taxpayer’s money can be used to pay for their losses. When
business firms are transformed to the private sector there will be a change of
management style because there will be transparency and accountability of
managers to owners. This is loose when the firms are government owned.
Therefore, the analysis and recommendations on working capital management will
enhance the knowledge of management of working capital investment and short
term debts for managers of government, transition and privatized firms in
developing economies, which this research concentrates on.
1.2.
Rationale for the Study
Working capital investments and related
short-term finances originate from three main business operations - purchasing,
producing and selling. They can be considered as consequences of business operations.
However, as much as the operations affect the balances of working capital
investments and finances, the later also determine the cost and flexibility
with which the operations are performed. Efficient management of working
capital investments and related short-term debts can be used to make the
purchasing, producing and selling operations cheaper and more flexible. In the
latter sense they are used as instruments for the management of business
operations, which in the mean time create benefits and costs. Therefore, the
relevance of working capital investments and short-term debts originate from
these benefits and costs. Beyond doubt efficient management of both items can
help the success of firms in generating value. Operations are results of inter-firm
transactions. Therefore, managing working capital investments, finances and
operations internally within firms and the efficiency with which firms
co-operate among themselves determine their end result.
1.3.
Objective of the Study
The four research objectives of the study are:
ü To
study the concepts of internal and external working capital and short-term debt
management;
ü To
develop a conceptual framework (model) that can be used to study Air India Ltd,
in the context of a developing economy, specifically in India.
ü To
use this conceptual model to describe the internal and external working capital
management practices of the Air India Ltd and by doing this we hope to learn
how these firms manage their working capital and
ü To
compare the conceptual and empirical findings and try to forward conceptual and
practical implications at Air India Ltd, moreover we will also try to indicate
future research directions.
To
read more…….
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