The use of economic resources effectively and efficiently
The company is an economic institution that aims to produce goods and services through the use of economic resources effectively and efficiently. Every company that runs a business always requires working capital. The working capital is used among others for the purchase of raw materials, fixed assets, payment of employee salaries and payment of other costs.
Effective and efficient working capital management is crucial for the company's long-term growth and sustainability. If the company lacks working capital, it is likely that the company will lose revenue and profits. Companies that do not have sufficient working capital but cannot pay short-term obligations in time will face liquidity problems (Journal of Science Research).
B. PROBLEM FORMULATION
1. What is the meaning of Working Capital Management?
2. What are the concepts of Working Capital Management?
3. What is the significance and purpose of Working Capital Management?
4. What are the types of Working Capital?
5. What are the sources of Working Capital?
6. How is the working capital turnover?
7. How to determine the amount of working capital turnover?
8. Example about Working Capital?
C. WRITING BENEFITS
1. Add insight into the Working Capital Management material
2. Adding the knowledge of writers, especially in the system of making paper
A. UNDERSTANDING OF WORKING CAPITAL MANAGEMENT
Working capital is defined as capital used to finance the company's daily operations, especially those that have a short time period. In other words, working capital is an investment that is invested in current assets or short-term assets, such as cash, banks, securities, receivables, inventories and other current assets.
Whereas working capital management is a management of corporate investment in current assets. Which means how to manage investments in the company's current assets. As according to Weston and Brigham (1986) explained that working capital management is a company's investment in the short term, which includes cash, securities (securities),
accounts receivable, and inventories.
B. CONCEPT OF WORKING CAPITAL
Bambang Riyanto (1995) stated that working capital can be divided into 3 concepts, namely quantitative, qualitative and functional concepts.
1. Quantitative Concepts
Working capital according to the quantitative concept describes the whole or the amount of current assets such as cash, marketable securities, accounts receivable inventory or the whole rather than the amount of current assets in which these current assets rotate once and can return to their original shape or the funds can be free again in a relative time short or short. This concept is usually called gross working capital.
Based on the concept above, it can be concluded, that the concept only shows the amount of working capital used to carry out routine daily business operations, with no question of where the working capital is obtained, whether from long-term debt holders or long-term debt short. Large working capital does not necessarily describe a good security or margin of safety or a high level of security for short-term creditors. The large amount of working capital does not necessarily represent good company liquidity and does not necessarily represent a guarantee of the continuity of the company's operations in the next period.
2. Qualitative Concepts
According to the qualitative concept of working capital is the difference between current assets and current debt. Based on this concept, working capital is a part of current assets that can really be used to finance company operations without waiting for liquidity. This concept is commonly referred to as net working capital.
This definition is qualitative because it indicates the availability of current assets that are greater than current liabilities and shows the level of security for short-term creditors and ensures the continuity of operations in the future and the company's ability to obtain additional short-term collateral with current assets.
3. Functional Concepts
Working capital according to this concept focuses on the function of the funds in generating funds or income from the company's main business. Every fund used in the company is intended to generate income. There are funds used in a particular accounting period that generate income in that period. Meanwhile, there are also those that are intended to produce in the following periods or in the future, for example buildings, machinery, office equipment or other fixed assets called future income.
So working capital according to this concept is the funds used to generate income at this time in accordance with the main purpose of the establishment of the company, including cash, trade receivables. And so forth. While securities or securities and profit margins from receivables are potential working capital that will become working capital if the receivables are paid and the securities have been sold.
C. IMPORTANT MEANING AND OBJECTIVES OF WORKING CAPITAL MANAGEMENT
The importance of working capital management for the company, especially for financial health and company performance is:
1. That the activities of a financial management are mostly spent in the operational activities of the company from time to time or in other words most of the time is allocated to take care of working capital.
2. Investments in current assets, change rapidly and often experience changes and tend to be volatile.
3. In practice it is often that more than half of the total assets are part of the total current assets, which is the company's working capital.
4. Especially for small companies working capital management is very important because investments in fixed assets can be suppressed by renting, but current investments in receivables and stocks cannot be avoided must be fulfilled immediately.
5. Especially for companies that are relatively small, the function of working capital management is very important.
6. There is a very close relationship between sales growth and working capital requirements.
Then the goals of working capital management for the company are as follows:
1. Working capital is used to meet the company's liquidity needs, meaning that a company's liquidity is very dependent on working capital management.
2. With sufficient working capital the company has the ability to fulfill obligations on time.
3. Allows for companies to have sufficient preparations in order to meet the needs of their customers.
4. Allows the company to obtain additional funds from creditors, if its financial ratios meet conditions such as guaranteed liquidity.
5. Allows the company to provide credit terms that attract customers, with the capabilities they have.
6. To maximize the use of current assets to increase profits and sales.
7. The company is able to protect itself when there is a working capital crisis due to the fall in the value of current assets.
D. TYPES OF WORKING CAPITAL
According to WB. Taylor da Bambang Rianto (1995) Working capital is classified into several types, i.e.
1. Permanent Working Capital
Permanent working capital is the working capital available to the company to carry out its functions, this working capital consists of:
a. Primary working capital
Primary working capital is the minimum amount of working capital that a company must have to maintain business continuity or working capital that is continuously needed for its business activities.
b. Normal working capital
Normal working capital is working capital needed for the normal production process.
2. Variable Working Capital
Namely working capital whose amount varies according to changing circumstances, this working capital consists of:
a. Seasonal Working Capital
Changing working capital is caused by seasonal fluctuations.
b. Cyclical Working Capital
Changing working capital is caused by fluctuations in conjuncture.
c. Emergency Working Capital
Amounts of working capital change due to emergencies that were not previously known (for example labor strikes, floods, sudden economic changes).
E. SOURCE OF WORKING CAPITAL
Source of funds for working capital can be obtained from a decrease in the amount of assets and an increase in liabilities. Here are some sources of working capital that can be used:
1. Company operating results
2. Benefits of selling securities
3. Selling of shares
4. Sale of fixed assets
5. Bond sales
6. Obtain a loan
7. Grant funds
Specifically the source of working capital is divided into two types:
1. Permanent financing
2. Smooth financing
Sources of working capital for current financing are used to finance variable working capital which usually consists of two sources:
a. Capital from internal sources consists of:
1) Compilation
2) Obligations not yet due
3) Reserves and profits
b. External capital:
1) Credit
2) Loans
F. WORKING CAPITAL rotation
Working Capital is always operating or rotating within the company as long as the company concerned is in business. The working capital turnover period starts from the time when cash is invested in the components of working capital until when it returns to cash.
According to Kasmir (2011: 182), which states that: Working capital turnover is one of the ratios to measure or assess the effectiveness of the company's working capital during a certain period. This means how much working capital revolves during one period or in one period.
The shorter the period means the faster the turnover or the higher the turnover rate.
Working capital turnover is very important to see how much working capital the company uses to create sales so that later it can add to the company's financial coffers. Paying attention to working capital will enable the company to use its resources economically so that the danger of a financial crisis will be minimized.
The following formula for calculating working capital turnover ratios.
1. If the value of sales rises, the ratio will be high. Similarly, if working capital falls.
2. Conversely, if sales fall, the ratio will also be low. Especially if working capital rises.