What is the impact of capital expenditure on working capital management for non - financial firms? How this impact can be measured? Which variables should I use to get the desire relationship? I am doing doing MS research on this topic and I need your assistance on this topic. Any valuable suggestion regarding to the topic would be appreciated.Muhammad Imran! You have asked me three question. I am trying to answer all these questions.
Ms/Mphill in Economics & Finance from Pakistan
Q:- 1. What is the impact of capital expenditure on working capital management for non - financial firms?
Ans. : There is vast impact of capital expenditure on working capital management for non-financial firms. I explain it with simple example : Suppose, there is an educational organisation. Its chartered accountant has made its working capital management in which chartered accountant has fixed the date of getting the fees from students, paying salaries to employees and other expenditures. Now, above board of director capture in greed. They started the project of making new buildings. This is capital expenditure of that organisation. They did not make good financial planning for this construction. Due to this, they feel shortage of fund. Now, same burden will on working capital. CA is as working capital manager. What will he or she do? CA will collect some money by not paying salaries or other expenditures and will supply money for construction. Due to this, whole salaries and other expenses will be delay.So, this is main impact of capital expenditures on working capital management.
Q:- 2. How this impact can be measured?
Ans. : To measure this impact is very simple. Above story is real. One of my student is working as accountant in educational organisation. He did not get his salary from last 4 months. Now, he is making planning to leave this work. Like this, other employee will be leave this educational organisation. Moreover, other creditors who will not get money will sue in court against that educational organisation. That educational organisation can see its effect in future.
Q:- 3. Which variables should I use to get the desire relationship?
Ans. : Check your latest financial statements and find which particular capital expenditure is affecting working capital. Then we can create its relationship with increasing or decreasing of working capital.