Working capital management and how it affects the liquidity and Dissertation

Working capital management and how it affects the liquidity and profitaility position of the hotel industry in the UK - Dissertation Example Research Questions 8 2.2. Research Objectives 8 3. Literature Review 9 3.1. Working Capital & its importance 9 3.2. Working capital management 13 3.3. Inventory management 16 3.4. Cash management 19 4. Research methodology 26 4.1. Research philosophy 26 4.2. Research approach and technique 28 4.3. Sources & collection of data 29 4.4. Ethics 32 4.5. Credibility & verification 33 4.6. Research limitations 34 4.7. Estimated costs 34 4.8. Time activity 35 5. Findings 36 6. Discussions 41 6.1. Working capital & its importance 41 6.2. Management & control of working capital 42 6.3. Working capital & its effects on liquidity and profitability of a firm 45 6.4. Relevance of & impact of working capital in the UK hotel industry 47 6.5. Analysis & discussion 54 7. Conclusion & Recommendation 58 8. Reflections 63 References 67 1. Introduction With the advent of globalization and major change in economy, various sectors have come into picture and have shown promising development all around. One o f them is definitely the hospitality sector. People flock in from various part of the world for various purposes and here comes the usefulness of the service sector. A country’s reputation also lies in the quality of hospitality which it may provide. The super powers in respect of world economy certainly have a cutting edge than others. UK is a favorite destination to citizens all round the globe. The culmination of people of various societies can be found over there, who are out to make their living. As a result the service industry in UK is on a boom. 4.2 percent of investment is made in the service sector (Economic contribution of UK hospitality industry, 2010). The London Olympics which is to be staged in 2012 will see numerous foot falls as people round the globe will be there to witness the gala event. The government has taken steps to renovate the industry and provide best of service. An addition of 1.2 billion pound will be there to the economy (2012 London Olympics F act). Economy earned by the hotel industry can be contributed to other growing or lesser growing sectors. It is quite evident that the hotel industry, especially those engaged in large scale are surely to be benefited, and can face high profitability. But amidst this, proper financial management of resource and a control on the working capital is also required to raise long term profitability. The profit gained over this period of time can be invested and manipulated well for future days. One of the important aspects in finance deals with Working Capital Management. The term Working capital deals with two broad divisions of the Balance Sheet, i.e. current asset and the current liabilities and the numeric difference between them. The current asset mainly comprises of cash, sundry debtors which are also known as Accounts receivable and bills receivable and inventories whereas the current liabilities deals with short term debt, accounts payable, accrued liabilities and other debts. In lay man’s term working capital is one of the crucial requirements of a firm and is the fund which is required to meet up the day to days expenses. Working capital may vary from one organization to another based on their size and the amount of money that are engaged in current assets. Organizations employed with high fixed assets tend to possess a low working capital. Presence of an efficient working capital is of utmost importance to the firm and its assessment is also needed to be monitored in a correct manner. The overestimation or the under estimation both may lead to mishaps (Mathur, 2007) for the organization. Overestimation may hamper the return on investment by the accumulation of the inventories. Whereas the underestimation may curb the growth, as the organization will not move to venture into new projects due