Select any Small or Medium Enterprise (SME) of your choice. Discuss wi

Question

Select any Small or Medium Enterprise (SME) of your choice. Discuss with them about why they need to manage working capital and how it is done. What are the various barriers faced by them in optimization of working capital

10 May 2025

Answer :

Word Count : 609

For this discussion, let's consider a small manufacturing enterprise that produces handcrafted wooden furniture. This SME is an established business with a steady local customer base but struggles with efficiently managing its working capital. I had the opportunity to discuss with the owner the importance of working capital management and the methods they use to optimize it.

Working capital refers to the funds required for the day-to-day operations of a business. It is the difference between a company’s current assets and current liabilities. In the context of a small or medium enterprise like this, effective management of working capital is crucial _________ _________ __________ ___ __________ __________ _____ __________ _____ __________ _________ ________.
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Particulars	Rs. Lakhs	Particulars	Rs. Lakhs
Opening stock	1.75	Sales : Credit	12.00
Add: Manufacturing costs	10.75	Cash	3.00
	12.50
Less: Closing stock	1.50
Cost of goods sold	11.00
Gross Profit	4.00		15.00
	15.00
Administrative expenses	0.35	Gross Profit	4.00
Selling expenses	0.25	Other Income	0.09
Depreciation	0.50
Interest	0.47
Income –tax	1.26
Net Profit	1.26
	4.09

Liabilities	Rs. Lakhs	Assets	Rs. Lakhs
Equity shares of Rs. 10 each	3.50	Plant and machinery	10.00
10% Preference shares	2.00	Less: Depreciation	2.50
Reserves and Surplus	2.00	Net plant and machinery	7.50
Long-term loan (12%)	1.00	Goodwill	1.40
Debentures (14%)	2.50	Stock	1.50
Creditors	0.60	Debtors	1.00
Bills Payable	0.20	Pre-paid expenses	0.25
Accrued expenses	0.20	Marketable securities	0.75
Provision for tax	0.65	Cash	0.25
	12.65		12.65

	(Rs. Lakhs)
Reserves at the beginning	1.465
Net Profit during the year	1.260
Preference dividends	2.725
Equity dividends	0.200
Reserves at the close of year	0.525
	2.000