A STUDY ON WORKING CAPITAL MANAGEMENT AND ITS EFFECT ON LIQUIDITY

This study focuses on evaluating the impact of working capital management on the liquidity position of firms and its overall influence on short-term financial stability.
Working capital management is a crucial area of financial management that involves the efficient control and utilization of current assets and current liabilities. It mainly includes components such as cash, inventory, accounts receivable, and accounts payable, which directly affect a firm’s operational efficiency and liquidity position.
The main objective of this research is to analyze the relationship between working capital management and liquidity by using secondary data collected from the financial statements of selected companies over a specific time period. A quantitative research approach has been adopted to measure liquidity performance and assess
how effectively firms manage their working capital. Various
financial ratios such as current ratio, quick ratio, and other liquidity indicators are used to evaluate the efficiency of short-term fund management.The analysis reveals that effective working capital management plays a significant role in improving a firm’s liquidity position and ensuring smooth business operations. Companies that maintain an optimal level of working capital are better equipped to meet their short-term obligations without financial pressure, thereby maintaining operational continuity and financial stability. Proper management of receivables ensures timely cash inflows, efficient inventory control reduces unnecessary holding costs, and effective management of payable supports better cash flow planning.