Abstract:
Ensuring the maximization of returns, profitability and the value of a firm is important for its survival. To achieve this, one vital strategy is the efficient management of the firm’s working capital. Balancing liquidity and profitability in the petro-chemical industry which is cash intensive where Total Petroleum Ghana Limited (TPGL) is found is very important in ensuring success. In view of this, the study sought to investigate how the management of working capital at TPGL affects its funding strategies. The study also focused on how the various major components of working capital such as cash and marketable securities, accounts receivables, inventory and current liabilities are managed. The study used purposive sampling to select respondents from the management board of TPGL.
Description:
Working capital is the capital invested in different items of current assets needed for the business, viz, inventory, debtors, cash and other current assets such as loan and advances to third parties (Sylaja, 1999; Keown1996). Maintaining working capital up to a certain level ensures the sustained operations of the firm to guarantee that profits are generated. Shortage however leads to lower capacity utilization, lower turnover and lower profit. Excess working capital also leads to idle funds which subsequently affect profitability, lending credence to the dictum “Adequacy is a virtue, surfeit is not” (Sylaja 1999). Sylaja (1999) therefore summarizes net working capital as the difference between current assets and current liabilities whiles gross working capital is the sum of all working capitals available to an organisation. Keown (1996) has emphasized that “working capital management is concerned with the management of the firm’s net working capital or the difference in the firm’s current assets and current liabilities”. In continuing his analysis of working capital management, he reiterated that a firm’s working capital decreases, whiles its profitability rises. This increase in profitability is however done at the expense of an increased risk of illiquidity.
