Definition: What is Capital Management (CM)?

Capital management (CM) is a financial strategy aimed at ensuring maximum efficiency in a company’s cash flow. 

Its aim is for the business to have adequate means to meet its day-to-day expenses, as well as financial obligations in the short term. 

What is Capital Management?

Capital Management

The idea is to maintain a good ratio between the company’s assets and liabilities.

Effective CM guarantees that the business can easily handle its expenses and debts without any risk to the core.

See Also: What is the Capital Market?

Overview – Capital Management

Capital management is based on careful analysis of assets and liabilities, and managing each individual component in order to improve efficiency and earnings. 

Sometimes the financial state of a company can be improved by cutting unnecessary expenses; at other times, earnings can be increased by implementing a small change in one of the main areas of business. 

When capital management is done right, the company should see an increase in financial levels, unless it’s already working at maximum efficiency, which is unlikely in most cases.

It’s really important to focus on key areas of the company and reduce redundancy.

In many businesses, redundancy is what trumps profit. Another key element is unnecessary expenses, which can add up to quite a lot if left unchecked.

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