Paper type: Essay Pages: 24 (5872 words)
1.1 Background of the Study
Finance is a business term which deals with the study of fund management. If finance is to be accepted as weapon which enables an organization to pay its bills promptly it is necessarily linked with the flow of fund. The management may accept or reject a business provision on the basic of financial viabilities .It guides investment where opportunity is the greatest producing relatively uniform yard stick for judging most of a firms operations and projects and is continually concerned with achieving and adequate rate of return on investment as this is necessary for survival and the attracting of new capital.
The function of finance involves three major decisions which the firm must make the investment decision, financing decision and dividend decision. An optimum combination of the three will maximize the value of the firm. In other word entire activities relating the finance are done with the help of financial management. So in this area of management there are two main functions firstly to assemble the funds necessary to initiate a new business economically and secondly to provide the basis of continue new operation.
“Financial management may be defined as the part of management which is concerned mainly with raising funds in the most economic and suitable manner, using, these funds as profitable as possible, planning future operation, and controlling current performance and future developments through financial accounting cost accounting, budgeting, statistics, and other means. It guides investment where opportunity is the greatest producing relatively uniform yard stick for judging most of a firms operations and projects and is continually concerned with achieving an adequate rate of return on investment as this is necessary for survival and the attracting of new capital”(kulkarni, 1986: 76)
We know that firms aim at maximizing the wealth of shareholders. In its effort to maximize shareholders wealth, the firm should earn sufficient return from the operations. Earning a sound amount of profit requires successful business activities. The firm has to invest enough funds in current assets for the success of business activity. Current assets are needed because sales do not convert into cash immediately. Investment in current assets should be just adequate or not more not less, to the needs of the business firm. It should be realized that the working capital needs of the firm may be fluctuating with changing business activity. This may cause excess or shortage of working capital frequently. The management should be too prompt to begin an action and current imbalance. Thus, the firm should have knowledge of the sources of working capital funds as well as investment avenues where idle funds may be temporarily invested.
Thus the study of working capital is of prime importance to internal and external analysts because of its close relationship with the current day to day operations of a business enterprise. Management of working capital in a business enterprise is very important mainly for few reasons. Firstly, an enterprise, must determine the adequacy of investment in current assets, otherwise, it would seriously erode their liquidity base. Secondly, they must select the type of current asset suitable for investment so as to raise operational efficiency. Thirdly they are required to ascertain the turnover of current assets that greatly determine the profitability of the enterprise. Lastly they must find out the appropriate source of funds to finance current assets. It is therefore a recognized fact that any mistake made in management of working capital can lead to adverse affects in business and can reduce the liquidity turnover and profitability of the firms.
Working capital management is an important decision making area of financial management of an enterprises. It requires understanding for how to raise and allocated financial resources how to relate Short-term investments, financial decisions to the overall objectives of the firm and how to relate short-terms financial decisions to certain long term financial decision to certain long term financial decisions .(Upadhyay,1985:40)
Working capital management involves the relationship between a firm’s Short-term assets and its short term liabilities. The goal of working capital management is to ensure that a firm is able to continue it’s operations and that is has sufficient ability to satisfy both maturing short-term debt up coming operational expenses. The management of working capital involves managing inventories, account receivable, account payable, cash etc.
There are two concept of working capital gross concept and net concept. Gross working capital simply called as working capital, refers to the firms investment in current asserts. Current assets are the assets which can be converted into cash within an accounting year and include cash, short-term securities, debits, bills receivables and stock.
Net working capital refers to the difference between current assets and current liabilities current liabilities are those claims of outsiders which are expected to return for payment within an accounting year and include creditors, bills payable and outstanding expenses. Net working capital can be positive or negative. A positive net working capital will arise when current assets exceed current liabilities. A negative net working capital occurs when current liabilities are in excess of current assets. (Pandey; 1995: 665)
Working capital management is a process of short-term decision making regarding the current assets and liabilities affecting the long term operation of an organization. It is a process of planning and controlling the level and mix of current assets of the firm as well as financing these assets. It includes decision regarding cash and marketable securities, receivables, inventories and current liabilities with an objective of maximizing the overall in due of the firm.
In general, the concept of working capital is synonymous with the fund available for meeting day -to- day requirements of a company. But according to a group of authorities working capital refers to the amount of investment in total current assets only. It means they are supporting the gross concept of working capital. Thus the gross concept of working capital denotes short-term asset only, it does not include short-term liabilities. However, a business can not exist only with the current assets, it needs current liabilities too. Actually, the amount of working capital heaving depends upon the amount of current liabilities. In this sense working capital means the excess of current assets over current liabilities.
Meaning of Banks
Banks are very important financial intermediaries in financial market. “Financial intermediaries not only savers but also they create new financial products. They gain economics of scale in analysis of credit worthiness of potential borrowers in processing and collecting lone and minimize cost of information and make easy flow of transactions.”(Peter, 1999: 4)
Banks are the principal source of credit to house hold, individuals and family business all forms and local units of government Furth more, they are the source of financial information, planning and controlling. “Banking institution is inevitable for resource mobilization and all-round development of the country. It is resource for economic development; it maintains economic confidence of various segments and extends credit to people.” (Ronald, 1993: p 87). Bank deal with money by accepting various type of deposits disbursing loans and investing in productive sectors and rendering other financial services as the primary function.
Banks are channels between saving surplus and saving deficit people and thus they are the bridge of utilize scatter fund to productive sectors. Hence, they represent a vital role in the transmission of government economic policies (especially monitory policies) to the economy. When bank credit is expensive, the investment slows down and unemployment rises. Bank deposit represents the most significant component of the money supply used by the public, commercial banks play an important role for economic development of the country as they provide capital for the development of industry trade and business by investing the saving collected as deposits from public. They render various services to their customers facilitating their economic and social life.
About Bank of Katmandu Ltd.
Bank of Kathmandu Ltd. (BOK LTD.) is a culmination of a comprehensive vision of the promoters to take the Nepalese economy to a newer realign in the global market. Each promoters of Bank of Kathmandu has successfully demonstrated leadership skill, business acumen and entrepreneurial wants his/her respective field. Bank of Kathmandu came into operation in March 1995, under the commercial bank act 2031 with the following predominant objectives. Identify business prospects not at catered by then existing commercial banks and offer new banking products and services. Introduce modern banking technology facilitating bank and business operations and transactions.
Bank of Kathmandu activities globe around deposit mobilizations, Advancement of various credits, International banking including trade financing, inward and outward remittance and funds and portfolio management. The bank has introduced many facilities to the customer. Deposits of unfavorable conditions, the bank has been able to make a substantial marketing of products, expansion of areas and diversification of service using latest technology, which will ultimately, helps it to grow further. Bank of Kathmandu is committed to providing products and service of the highest standards to its customer by understanding their requirements best suiting the market needs.
Bank of Kathmandu has been providing any where banking facilities, from which customer can deposit and withdraw from any of nineteen branches including head office. Bank has lunched customer oriented service such as hire purchase, educational loan, housing loan, vehicle loan, festivity loan, foreign employment loan scheme etc. bank of Kathmandu. It’s launched the mobile banking service through SMS. With the aim of providing banking services at the customer fingertips. Bok is starting internet Banking and alert service. BOK is starting internal banking and alert service very soon.
Capital Structure of Bank of Kathmandu
Independent and Self-Governing board, involving a pool of endowed and farsighted directors, each directors of the board has been recognized and well-acclaimed for his/her contribution in the development and growth of Bank of Kathmandu. Young, seasoned and talented bankers, each with year of banking experience and proven competency, Constitute the management team of bank of Kathmandu. In the present economic scenario the bank has to complete with other existing and new commercial bank of Nepal. It is already established itself as an innovative bank that introduces new modern technology in the banking industry. In short, BOK has made significant contribution to support the countries economic system and development effort.
1.2 Focus of the Study
Financial institutions assist in the economic development of the country. The concept of financial institution in Nepal was introduced when the first commercial bank, the Nepal Bank Limited, was established in 1994 B.S as a semi-government organization. In the fiscal year 2039/040, new banking policy was introduced for the establishment of new banks by the joint investment of foreign nations. The establishment of joint venture banks gave a new horizon to the financial sector of the country.
Commercial banks are the heart of the financial system, which plays significant role by collecting scattered surplus fund and delaying these funds in the productive sectors as an investment. They hold the deposits of many persons, government establishment and business units. They make fund available through their lending and investing activities to borrowers, individuals, business firms and government establishments.
Bank is a business organization where monetary transaction occurs. It creates funds from its client, saving and lends the same to needy person or business companies’ in term of loans, advances and investment. So, proper financial decision making is more important in banking transaction for its efficiency and profitability. Most of the financial decisions of a bank are concerned with current assets and current liabilities.
The working capital management of a bank is different from that of other business enterprises. A bank plays a significant role to fulfill the requirement of working capital of any other type of business enterprises. It also needs efficient management. Investment in working capital of other business enterprises is a part of current assets of banks working capital and we can consider deposits and short term borrowing as a part of current liabilities. So this study is a reference regarding the working capital management.
1.3 Statement of the Problem
Working capital management has been regarded as one of the conditioning factor in the decision making issue. The management of working capital is synonymous to the management of short- term liquidity. Working capital is regarded as the life blood and nerve of a business concern and is essential to accommodate the smooth operations of working capital is harmful to an enterprise to achieve its primary objectives, therefore maintaining optimal level of working capital is the cruse of the problem as it is strongly related to the trade off between risk and return. How ever it is difficult to point out as to how much working capital needed by a particular business organization.
An organization which is not willing to take more financial risks can go for more short term liquidity. The more of short term liquidity means more of current assets and less of current liabilities. The less current liabilities implies less short term financing heading to the lower returns resulting from the use of more high cost long term financing , so it is very essential to analysis and find out problems and it’s solution to make efficient use for funds for minimizing the risk of loss to attain profit objective. Inadequate investments in working capital threaten the solvency of enterprise as well as effect its growth. On the other hand, excessive investments in working capital yield nothing. Therefore working capital should be determined in such a way that total cost of liquidity and cost of non liquidity is minimum. Hence the goal of working capital management is to manage the firm’s current assets and current liabilities in such a way that it should maintain satisfactory level.
Working capital management of banks is more difficult than that of manufacturing and non manufacturing business organization. Commercial banks are great monetary institutions which are playing important role to general welfare of the economy. The responsibility of commercial banks is more than any other financial institutions. They must be ready to pay on demand without warning or notice, a good share of their viabilities. Banks collect funds from different types of deposits for providing loan and advances to different sector. To get higher return, banks must try to increase funds from deposits as well as their investment.
The first motive of banking business is to borrow public saving and lend to needy people. But commercial banks always face the problem for utilizing more deposit as investment fully and productively. The gap between collection of deposits and disbursement of loan increase the cash balance on bank, which require paying its large amount of liability of banks. Some specific problems felt in this study are as follows:- 1. What are the major factors effecting the management of WC in BOK? 2. Which of the current assets are more problematic on BOK?
3. How have the firms been raising the required funds? Is the funds properly and productively utilized or not? 4. What are the components of WC which affect the operating income of BOK? 5. How have the bank been utilizing their debt capital.
1.4 Objective of the Study
Research objectives are the guidelines to conducting the research at a right way. The major objective of the study is to evaluate the working capital position of bank of Kathmandu limited. The other objectives of this study are to throw light on the importance of the proper management of working capital and to make suggestion about how to manage working capital of bank of Kathmandu limited from the long rage view point. The specific objectives of the study are as follows:
– 1. To indicate liquidity position in current assets of bank of Kathmandu limited over the year. 2. To point out the position of current liabilities and assets of bank of Kathmandu limited over the year. 3. To analyze the need to control investment in working capital in bank of Kathmandu limited. 4. To make suggestion about removing any obstacle in making decision regarding management of working capital and to point out alternating solution for maximizing the profit .
1.5 Significance of the Study
Working capital is the size of investment in each type of current assets, each of the current assets should be managed efficiently an effectively. It is because decision regarding working capital affects not only the profit ability of the firm in the short term but also its very survival in the long run. The management of working capital should not be neglected by enterprises otherwise they will seriously erode their financial viability. As the commercial bank in Nepal are exacting greater and greater influence in the economy of the country and effective and efficient management of their current assets is needed to better the profitability of the firm.
The need of the study like this arises from the real nature of the banking business and also forms the impact that it has economy of the country because the business of banks is to accept deposits and advanced loans, and the label of deposits and loans depends upon the working capital policy the study of this type will be most importance for the bankers, the economists and the public at large. It provides the literature to the researcher who wants to carry on further researcher who wants to carry on further research in this field. Therefore, it has been felt very necessary to evaluate the position of working capital management and to focus on the importance of the capital management in bank of Kathmandu limited.
1.6 Limitations of the Study
None of the study can go beyond the boundary of some limitations and this study is also not an exception. The scope of the present study has been limited in terms of period of study as well as sources and nature of data. The following are the major limitations of the study. 1. This study is considered only bank of Kathmandu limited and based on secondary data.
2. This study focused on working capital management of bank of Kathmandu limited only. Thus the findings of the study may not be applicable for other bank so the study cannot judge other financial aspects of the bank. 3. Only main financial tools and statistical tools are employed for analyzing the working capital management. 4. The study only covers the period of five fiscal years from 2059/060 to 2063/ 064. 5. This study is basically done as the requirement for the partial fulfillment of master’s of Business studies (MBS) of Tribhuvan university (T.U.) 1.7 Organization of the Study
The study has been divided into five chapters.
They are as follows:-
The first chapter deals with introduction, background of the study, limitations of the study and organization of the study. There fore, this chapter is for brief introduction of the topic and it highlights the fundamental objectives.
2. Review of literature
The second chapter deals with the review of related literatures and available studies Written and prepared by different experts and researcher in the field of working capital.
3. Research Methodology
The third chapter presents the research methodology used in the study. It deals with research design, population and sample. Nature and sources of data date processing procedure, tools and techniques of analysis.
4. Presentation and Analysis of Data
The fourth chapter is the main part of this research that deals with the presentation analysis and interpretation of data. Different types of tools and technique have been used to analyze the available data in order to achieve the set objectives.
5. Summery, Conclusion and Recommendations
The fifth chapter presents the summary and conclusion of the study based on the analysis of data and also provides recommendation for the improvement of working capital management of bank of Kathmandu limited.
Review of Literature
This chapter is concerned with the review of relevant literatures available in the books, journals articles research reports, newspapers, magazines, policy documents which are published or unpublished. Every study is very much based in past knowledge study and experiences. The past knowledge or the previous studies should not be ignored as it provides foundation to the present study various thesis works have done indifferent aspects of working capital of different organization are also review for the purpose of justifying the study . 2.1Conceptual Framework
The management of the funds of business can be described as financial management. Financial management is mainly concerned with two aspects. Firstly, fixed assets and fixed liabilities, which are concerned with current uses and sources of funds. Both of these types of funds play a vital role in business finance. Business firms need various types of assets in order to carry out its operation. Some assets are required to meet the needs of regular production and same other are required specially to meet day to day expenses and short term obligations. The assets such as cash, marketable, securities, account receivables and inventories which are know as current assets are required to maintain at a certain level depending upon the volume of production and sales.
The cash and marketable securities are respectively considered as purely liquid and near liquid assets where as the account receivable and inventories are not. However they can be liquidated as and when necessary within a period of less than one year. The capital invested on these assets is known as working capital. In short working capital is the sources of financing current assets and it includes shorts as well as long term financing.
Firms need cash to pay for all their day to day activities. They have to pay wages, pay for raw materials, pay bills and so on. The money available to them to do this is known as the firm’s working capital. The main sources of working capital are the current assets as these are short term assets that the firm can use to generate cash. However the firm also has current liabilities and so these have to be taken account of when working out how much working capital a firm has its disposal. Working Capital is there fore:-
Thus working capital is the same as net current assets, and is an important part of the top half of the firm’s balance sheet. It is vital to a business to have sufficient working capital to meet its entire requirement. Many businesses have gone under not because they were unprofitable but because they suffered from shortages of working capital.
By the definition of various experts of working capital management we conclude that all institution whether private or public financial institution manufacturing or non manufacturing that need just adequate working capital to compete with competitive market .
It is because over or under adequacy of working capital is dangerous from the firms objective points of view over investment on working capital effects the firms profitability just as idle investment. on the other hand under investment on working capital effects the liquidity position of the firm and causes to financial hindrance and failure of the company . It is therefore a recognized fact that any mistake made in management of working capital can cause to adverse effects in business and reduces the liquidity turn over and profitability and increases the cost of financing of the organization.
“The objective of managing working capital is to aid in the value maximization of the firm by minimizing the cost of working capital. The level of working capital also differs by the types and nature of business. The cost of maintaining the working capital depends on the sources of finance used. The short-term sources generally cost less than the long term sources but they are riskier.” (Pradhan, 1992: 148)
2.2 Concept of Working Capital
There are two schools of thoughts or concepts regarding the meaning of working capital. According to one school of thought, working capital is meant for the currents only. It is concerned nothing with the liabilities side. According to other school of thought working capital is the excess of current assets over current liabilities. The former concept which can be termed as gross concept, is important to newly established companies where liabilities have not been acquired immediately , but the lattes one which can be term as net concept is important for both newly established and operating concerns where some amount of current liabilities has been maintained for payment of different creditors, income taxes, bill payable, secured and unsecured loan etc.
The term current assets refers to those assets which in the ordinary course of business can be or will be turn into cash within one year without undergoing or diminishing in value and without disrupting the operations of the firm such as cash, Marketable securities, accounts receivables and inventory etc. current liabilities are those liabilities which are intended at their inception to be paid in the ordinary course of business such as accounts payable, bank overdraft and outstanding expenses etc . Mainly there are two concepts of working capital gross concept and net concept.
In a simple term gross concept of W/C means investment in current assets in other words, gross working capital is the total amount of available for financing of current assets .However it does not show the real financial position of a business firm.
According to this concept the working capital may be classified as capital invested in the various types of current assets such as cash, inventories, receivables etc. This classification important from financial manager’s point of view as it lays emphasis on the various areas of functional responsibility but it totally ignores the time which is very important in the formulation of procurement polices. From the view of I m pandey gross working capital refers to the firms investment in current assets. C/A are the assets which can be converted into cash within an accounting year and include cash short term securities debtors bills receivables and stock.
Gross concept of W/C is the narrow concept which is only concerned with the study about total investment of current assets .In the other hands, net concept of W/C is a broad concept which focuses to long term view of working capital. under the concept of net W/C it studies current assets and current liabilities as differently. Today’s market is heterogeneous every changed in environment and other factor’s bring changes of demand needs and wants of customers at the same time so every business firms have to be made their W/C policies to fit the new environment thus, Net W/C concept should be studied to know the portion of current liabilities. How much current liabilities should be managed to how much current assets? Net W/C is an accounting concept, which represents the excess of current assets over its current liabilities. current assets consists of cash, bank balance, stock, debtors, bills receivables etc and current liabilities consists bills payable, creditors, outstanding expenses etc.
Excess of current assets over current liabilities, thus, it indicates the liquidity position of an enterprises. From the view point of I .M pandey, the term net working capital refers to “the difference between current assets and current liabilities. Current liabilities are those claims outsiders which are expected to nature for payment within an accounting year and include creditors, bills payable and outstanding expenses. Net working capital can be negative or positive. A positive Net W/C will be arise when capital occurs when current liabilities are in excess of current assets” (Pandey;1995;p730 )
2.3 Classification of Working Capital
Working capital can be classified into two types:-
1. Permanent or fixed working capital
2. Temporary or variable or fluctuating working capital
A firm’s permanent working capital is the amount of current assets required to meet long term minimum needs. Temporary working capital on the other hand is the investment in current assets that varies with seasonal requirements. figure in below illustrates the firm’s changing needs for working capital over time while highlighting both the permanent and temporary nature of those needs.
Permanent working capital is similar to the firm’s fixed assets in two important respects. First, the amount invested in both of these asset groups is long term. Therefore supplies of capital to the firm need to realize that the funding needs for permanent current assets is long term despite the seeming contradiction that the assets being financed are called “Current”. Second, for a growing firm, the level of permanent working capital needed will increase over time in the same way that a firm’s fixed assets will need to increase over time. However, permanent working capital is different from fixed assets in one very important respects- it is constantly changing permanent working capital does not consists of particular current assets staying permanently in place , but is a permanent level of investment in current assets, whose individual items are constantly turning over.
Like permanent working capital, temporary working capital also consists of current assets in a constantly changing form. However since the need for this portion of the firm’s total current assets is seasonal, we may want to consider financing this level of current assets from a source which can it self be seasonal or temporary in nature. (Van Horn; 1996: 205) Thus the permanent working capital refers to that level of current assets which is required on a continuous basis over the entire year and the temporary working capital represents that portion of working capital which is required over permanent working capital.
2.4 Objectives of Working Capital
A bank undertakes many transactions daily. Sometimes, customers deposits large quantity and sometimes withdraw from their deposits in high quantity. Investment fund of banks is covered by deposit collections of different types of account holder. A bank should have to pay the money to depositors when they want to withdraw. For daily operation of office and to meet the administrative expenses, a bank should have certain level of working capital. Working capital is required to run the business smoothly and efficiently in the context of the set objective. It is no doubt that no company can achieve its goal without proper use of working capital. Therefore it can compare as lifeblood to the organization. The main objectives of arranging capital are as follows:
– 1. To pay to depositors
2. To maintain cash reserve ratio (CRR) & statutory liquidity Ratio (SLR)
3. To satisfy the customers by granting loans promptly and increase the attraction of business etc. 4. To meet the administrative expenses, perform the task as per objectives of business and run the business smoothly. 5. To fulfill the present need of business as well as get ready for risk and economic fluctuation in future.
2.5 Need of Working Capital
Working capital is maintained at bank by current saving & fixed deposit collection. Specially to grant loan and to pay cheque, creditor’s and account holders demand the liquidity. Generally banks need liquidity for maintaining following goals.
1. Transaction Motive
2. Security Motive
3. Speculative Motive
Need of working capital
2.6 Determinants of Working Capital
The total requirement of working capital is determined by a wide variety of factors. The influence of these factors is different in different business organizations. Perhaps none of them can neglect the management of adequate w/c. Therefore, an analysis of the relevant factors should be made in order to determine the total investment in w/c. The description of the factors which generally influence the w/c requirement of the firm is given below
1) Nature and Size of Business
The working capital requirement of a firm is basically related to Nature and size of the business organization. If the size of the business is small, then it requires less working capital but if the business organization is bigger, it requires more working capital. Financial and training institution have needed very high amount of w/c. Public utilities have a very limited need of w/c and have to invest abundantly in fixed assets. Their working capital requirements are nominal.
2) Production Policy
We just noted that a strategy of constant production may be maintained in order to resolve the working capital problems arising due to seasonal changes in the demand for the firm’s product. A steady production policy will cause inventories to accumulate during the off season periods and the firm will be exposed to greater inventory costs and risks. Thus, if cost and risks of maintaining a constant production schedules in accordance with changing demand. Those firms, whose productive capacities can be utilized for manufacturing varied products can have the advantaged of diversified activities and solve their working capital problems. (Pandey; 1995: 675)
3) Operating Efficiency
Operating efficiency of the firm means the optimums utilization of resources at minimum cost .The firm cannot effectively contribute to its working capital when the operating efficiency is low. Working capital turnover is improved with a better operation and financial efficiency of a firm, efficiency of operation accelerates the face of cash cycle and improves the working capital turnover . It releases the pressure on working capital by improving profitability and improving the internal generation of fund.
4) Manufacturing Cycle
Manufacturing cycle starts with the purchase and use of raw material and completes with the production of finished goods. Longer the manufacturing cycle larger will be the firm’s working capital requirements. An extended manufacturing time span means large tie-up funds in stocks. Thus if there are alternative way of manufacturing cycle should be chosen, once a manufacturing process has been selected , it should be ensured that manufacturing cycle is completed with in the specified period . This need proper planning and coordination at all levels of activity non manufacturing firm financial and service oriented enterprises do not have manufacturing cycle .(Pandey ; 1995: 674)
5) Profit Margin
The net profit is source of working capital to the extent that has been earned in cash. The earning capacity of the different firm can not be equal. In the words of I.M .Pandey “some firms enjoy a dominant position due to quality product or good marketing management or monopoly power in the market and earn a high profit margin.” Higher profit margin contributes to more working capital. The level of working capital is determined not only by the profit margin , but also by the way of appropriation for taxations, dividends, reserves and depreciation only after providing for these items internal funds can be set a side for working capital . As the provisions’ for these items are higher the amount of working capital will be lesser. 6) Level of Taxes
The level of taxes is one of the important elements, which is also influences working capital requirement of a firm. The amount of taxes to be paid in advances is determined by the prevailing tax regulations. But the firms profit is not constant or can’t be predetermined. Tax liability in a sense of short- term liquidity is payable in cash. Therefore the provision for tax amount is one of the important aspects of working capital planning. If tax liability decrease, it needs to decrease the working capital and vice -versa.
Besides the above factors there are many other factors also which may have a greater role in determining the size and composition of working capital for example firms attitude to take risk, credit policy, firms policies toward the financial management in the inflationary period, co-ordination among production, distribution, developed transport and communication system etc could also play an important role in determinants effects both temporary and permanent working capital.
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Working Capital Management. (2016, Aug 26). Retrieved from https://studymoose.com/working-capital-management-3-essay