Working Capital Management Report
All companies that truly prove to be successful are constantly fine-tuning and searching for ways to streamline and improve their working capital. In this section of our financial report, we will focus on the three companies in the computer hardware industry we have previously chosen to explore in-depth. Once again, they are (in alphabetical order): Dell, Gateway, and Hewlett-Packard (HP). Initially we will cover the background information needed to discuss capital management and capital investment. Following will be a discussion regarding the cash conversion cycle and the relevance that is placed on it when projecting a company's future. Finally, we will take what we have learned and identify which of the liquidity or efficiency ratios were under-performing relative to the industry standard. We will recommend specific changes in the working capital strategies as they apply and will include a detailed plan of the working capital strategy. We will conclude with a discussion on the consequences that could occur, based on our overall recommendations.
GENERAL WORKING CAPITAL INFORMATION
All businesses require capital investment, often thought of as a significant expenditure on buildings, machinery, vehicles, fixtures and fittings. Such 'Fixed Capital' investment is usually funded on a medium to long-term basis by term loans, equipment leases, and shareholders' own funds (SME). These costs are relatively predictable and the investment is usually planned in advance. Despite what may be considerable fluctuations, there will always be a core working capital requirement that must be funded for a company to remain in business. This is a base level of working capital that should be treated as permanent in nature and financed accordingly.
It may be hard to believe during financially successful times, such as when sales are soaring and profits are at all time highs, that a business' bank balance is not in a healthy parallel. The root of this problem can be found in the working capital investment. In contrast to capital investment, working capital is the funding required for the day-to day running of a business. These levels tend to fluctuate with levels of activity and short-term performance.
