Net working capital management

At present, the administration of Working Capital plays a preponderant role, since it provides tools of great importance to evaluate management errors and adopt correct and timely measures that enable us to achieve the desired results, achieving at the end of each period greater efficiency and effectiveness.

Introduction

In today's world there are important transformations in the functioning of the world economy, characterized by a global recession, in which Cuba is not totally exempt from its effects, nor is it oblivious to the ills that affect humanity; which has led to substantial changes in business activity, so making decisions to properly manage an organization is somewhat complex and represents a great responsibility for people who make such a commitment. These decisions, which largely determine the success of a company and its governing body, are the fruit of intelligent and prepared management. In this way, any manager must have a culture that allows her to appreciate the impact of her decisions from the economic and financial point of view;taking into account a better use of resources, increasing labor productivity, achieving better results with less costs, which can be achieved with effective management of working capital.

The investigation referred to the analysis of the Working Capital is of vital importance given the growing process of recovery of the national economy and taking into account that business improvement is based on self-financing, which requires companies to have to cover their expenses with their income. and to generate a profit margin so that they are increasingly efficient and competitive, and achieving a rational use of the Company's reserves for its better operation.

A number of factors influence the search for better management of Working Capital, such as the efficient administration of monetary resources, the granting of reasonable credits and the efficient management of collection, an adequate administration of inventory and an effective use of financing to short term. The combination of all these elements will make it possible to obtain favorable results and the sustained growth of the company.

Definition of Net Working Capital

Countless are the authors who have dedicated themselves to the study of operational financial management, which refers to the operational activities of the company and in particular fall within the field of Net Working Capital.

(Altschule. H, 1945), raises various criteria on the Net Working Capital, among which are:

"Is the number of monetary units invested in Current Assets not committed to Short-Term Liabilities." "Is the excess of the Assets over the Liabilities and represents the amount of the Current Assets that has not been supplied by the Short-term creditors." " is the difference obtained when comparing the total Current Assets, on a given date, with the total Liabilities, also Current or Short Term. The result of said comparison indicates the resources with which the company attends its operational and financial activities, without having to resort to extraordinary funds. ”

The criteria according to (Gitman, 1986), on the Net Working Capital, is:

"The difference between the Current Assets and the Current Liabilities of a company." The Net Working Capital also expresses that: “it is the part of the Current Assets of the company that are financed with Long Term funds.”

According to (E. Santandreu, 1989), the Working Capital must be seen from two points of view:

" Static point of view: it is the difference between the capital employed by the company on a permanent basis and the investments in net fixed assets." " Dynamic point of view: financial needs that occur cyclically in the company as a result of variations in the levels of exercise. This relationship is obtained by the difference between the Current Assets (investment) and the Short Term Liabilities (financing). ”

"It is that part of the permanent resources that exceed the financing of Fixed Assets."

As noted (Weston, 1994):

“Working Capital is the investment of a company in Short Term Assets (Cash, Net Sales, Accounts Receivable and Inventories). Net Working Capital is defined as Current Assets minus Current Liabilities. ”

Likewise, as suggested (Brearley, 1998):

"The Net Working Capital Fund is Current Assets minus Current Liabilities."

As mentioned (Demestre, 2002), the Net Working Capital are:

"The funds or resources with which a company operates in the Short Term, after covering the amount of the debts that also mature in the Short Term."

In terms of the teacher (GE Gómez, 2004):

The Working Capital can be defined as: "the difference between the current Assets and the Current Liabilities of the company".

As argued (W. Silva, 2004):

Gross Working Capital simply refers to Current Assets, Net Working Capital is defined as Current Assets minus Current Liabilities. Working Capital is the investment of a company in Short Term Assets (Cash, Negotiable Values, Accounts Receivable and Inventory).

There are two definitions of Working Capital that seem to have been generally accepted:

“Working Capital is the surplus of Current Assets over Current Liabilities, it is Current Assets that has been supplied by Long-term creditors and by shareholders. In other words, the Working Capital represents the amount of the Current Assets that has not been supplied by the Short-term creditors ”.

It can be said that a company has a Net Working Capital when its current Assets are greater than its Short-Term Liabilities, this means that if an organizational entity wants to start some commercial or production operation, it must manage a minimum of Working Capital that It will depend on the activity of each one.

This definition is of a qualitative nature, since it shows the possible availability of the Current Assets in excess of the Current Liabilities; represents a financial stability index or margin of protection for current creditors and for future normal operations.

The immediate availability of Working Capital depends on the type and liquid nature of Current Assets such as Cash, Temporary Investments in Cash, Accounts Receivable and Inventories. When Working Capital is defined in this way, it cannot be increased through loans from banks or through credit expansion by creditors.

The Net Working Capital represents the amount of the Current Assets that would remain if all the Current Liabilities were paid, assuming that there was no loss or gain when converting the Current Assets into Cash.

The term “Working Capital” is frequently used to designate those Assets that are changed relatively quickly from one form to another, that is, from Cash to Cost of Operations and Inventories, to Accounts Receivable, to Cash. When this term is used to designate the Current Assets, the net amount of the Current Assets is considered as Working Capital.

The Working Capital corresponds to the Current Assets, while the Net Working Capital is equivalent to the excess of the Current Assets over the Current Liabilities. There is a deficit of Net Working Capital if the Current Liabilities exceed the Current Assets.

In the present investigation, these definitions are considered valid and we use them, which is why the Net Working Capital will be defined as the difference between Current Assets and Current Liabilities, that is, whenever the Current Assets exceed the Current Liabilities, the company will have a positive Net Working Capital. Therefore, the existence of Net Working Capital is linked to the liquidity of the organization.

Origin and Need of the Net Working Capital.

As noted (F. Weston, 1994), the term Capital originated with the legendary American pacotillero, who used to load his car with numerous goods and travel a route to sell them. Such merchandise received the name of Working Capital because it was what was actually sold, or what "rotated along the way" to produce profits. The car and the horse, therefore, were financed with “Working Capital”, but the pacotillero borrowed the necessary funds to buy the merchandise. These loans were known as Working Capital loans, and had to be repaid after each trip to demonstrate to the bank that the credit was strong. If the pacotillero was able to repay the loan, then the banks that followed this procedure used banking policies of a solid nature.

The criterion of (GE Gómez, 2004) on the origin and need of Working Capital is that it is based on the environment of the company's cash flows that can be predictable, they are also based on the knowledge of the maturity of the obligations with third parties and the credit conditions with each one, but in reality what is essential and complicated is the prediction of future cash receipts, since Assets such as Accounts Receivable and Inventories are items that in the Short Term are difficult to convert to Cash, this shows that the more predictable future cash inflows, the lower the Working Capital that the company needs.

Other criteria are provided by different authors on the need for Net Working Capital, among which are:

High participation of the Current Assets in the Total Assets of the companies, therefore the Current Assets require careful attention. (Weston, 1994) Avoid “imbalances” that are the cause of “strong liquidity tensions” and of “situations that force the suspension of payments or the closing of the company due to not having the necessary credit to face it” (Santandreu, 1989). "Non-synchronized nature of the company's cash flows" (Gitman, 1986). Although payments can be relatively predicted, "it is quite difficult to predict the date that Current Assets other than cash and others can become Cash." A large part of the time is devoted by most financial managers to the daily internal occupations of the company, which fall under the purview of Working Capital management.(Weston, 1994). "The Profitability of a company can be affected by excess investment of Working Capital." (Demestre, 2002). Investment in Cash, Accounts Receivable and Inventories is inevitable, although it is in plants and equipment that can be leased; This, together with the fact that, at times, access to the Long-Term Capital market is difficult, so there must be a solid foundation in commercial credit and in Short-term bank loans, all of which affects Working Capital. (Weston, 1994) There is a close and direct relationship between the growth of Sales and the need to finance Current Assets (causal relationship). (Weston, 1994). The survival of the company, translated into its ability to cover its Short-Term obligations to the extent that they expire, that is,the probability of being technically insolvent: Risk. (Demestre, 2002). Existence of “Current investments that must be financed with permanent funds” (Santandreu, 1989). These investments are:

Security stock; that is, permanent stock in the company to maintain the correct rotation without interruptions and an adequate rate of return. Part of the treasury that must remain immobilized for some reason (Example: retention accounts, financial investments).

All these elements justify the need to finance investments with characteristics of Short-Term or Current investments with funds or permanent resources.

Net Working Capital Management.

Financial Management ¹ of the company is that management function whose mission is the adequate administration of financial resources to achieve the company's strategic objectives, performance and growth. At the present time, the financial administration has a preponderant role, since it provides tools to evaluate management errors and adopt the correct and opportune measures that allow us to rectify behaviors that allow us to achieve the desired results, that is, to know which issues need correction and the causes that justify it.

One of the fundamental elements within financial management is the management of Net Working Capital, which has as its primary objective, the “management of the company's current accounts that include Current Assets and Liabilities” (L. Gitman, 1986), in such a way that these are kept at an acceptable level (W. Silva, 2004).

(W. Silva, 2004) explains that Working Capital must be sufficient in quantity to train the company and conduct its operations on the most economical basis and without financial restrictions, in addition to facing emergencies and losses without danger of disaster financial. More specifically, an adequate Working Capital:

Protects the business from the adverse effect of a decrease in the values of the Current Assets. Makes it possible to pay all the obligations in a timely manner and take advantage of the cash payment discounts. Highly ensures the maintenance of the company's credit and provides what is necessary to deal with emergencies such as strikes, floods and fires. It allows to have Inventories at a level that will enable the business to satisfactorily serve the needs of customers. It enables the company to grant favorable credit conditions to its customers. Company to operate its business more efficiently because there should be no delay in obtaining materials, services and supplies due to difficulties in the Credit. It enables a business to endure periods of depression.

The author himself, like (Aguirre, 1992), argues that the Company's Current Assets must be large enough to cover its Current Liabilities and thus be able to ensure a reasonable margin of safety; It also says that to the extent that the Current Assets exceeds the needs of Working Capital, the business will have excess Working Capital, which may be the result of:

The issuance of bonds or capital shares in larger amounts. The sale of a non-current item that has not been replaceable. Income from operations or profits that do not apply to the payment of dividends. The conversion, not accompanied by replacement, of Operating assets in Working Capital through the process of depreciation, exhaustion and amortization.

For his part (Aguirre, 1992), he states that: "the decisions of administration of the Working Capital and its control is one of the most important functions of financial administration", among them are:

Current Assets, primarily Accounts Receivable and Inventory represents the highest investment of Asset investment within many companies. Current Liabilities are often an important source of financing, since it is often impossible to obtain loans. Working Capital represents the first line of defense of a business against the decrease in Sales. In the face of a decline in Sales, little needs to be done by the financier regarding commitments to Fixed Assets or Long-term debts; however, you can do a lot regarding credit policies, inventory control, accounts receivable, renew inventories more quickly, adopt a more aggressive collection policy in order to have greater liquidity,and payments can also be postponed to have an additional source of financing.

On the other hand, (Gitman, 1986), states that "the greater the amount of existing Current Assets, the greater the probability that some of them can become Cash to pay an overdue debt". Likewise, he explains that each company will adopt a certain policy regarding its Short-term finances, which is made up of two elements:

The magnitude of investment in Current Assets which is usually a relative measure of the level of total operating income. Financing of Current Assets which is a measure of the proportion of Short-term debts in relation to Long-term debts.

According to (J. Van Horne 1997), “the determination of the appropriate levels of Current Assets and Liabilities serves in setting the level of working capital, and includes fundamental decisions on the liquidity of the company and the composition of the maturities of its debt. In turn, these decisions are influenced by a compromise between Profitability and Risk ”.

The pillars on which the administration of Working Capital is based are supported to the extent that good management can be done on the level of liquidity, since the wider the margin between the current Assets that the organization has and its Liabilities The greater the ability to cover Short-term obligations, the greater the current disadvantage, however, because when there is a different degree of liquidity related to each resource and each obligation, when it is not possible to convert the most liquid Current Assets into money, the following Assets will have to replace them since the more of these they have, the greater the probability of taking and converting any of them to fulfill the contracted commitments. (W. Silva 2004).

Components of the Maneuver Fund.

Both in the definition and in relation to the Management of Working Capital and its importance, Current Assets and Current Liabilities play the leading role, so that both constitute the components of Working Capital; Each of these components must be managed efficiently to maintain the liquidity of the company without at the same time maintaining too high a level of any of them (W. Silva, 2004).

The Current Assets is part of, or is one of the masses of the Total Assets ² of a company and is made up of the most liquid Assets of the company, including the most representative accounts of the goods and rights that will be converted into money in a period of time not greater than one year (Demestre et al., 2001).

The main characteristics of Current Assets are (Smith, 1989):

Availability and intention to become Cash within the normal cycle of operations. For use and acquisition of other Current Assets, to pay Short-term debts and in general to cover all expenses and costs incurred in the normal operations of the organization during a period.

Current Assets are made up of Cash or Available, Accounts Receivable or Realizable and Inventories or Stocks.

Source: self made.

The Available or Cash "is made up of the representative items of those assets that can be used to pay the debts at maturity" (Demestre et al., 2001): Cash on hand, Demand deposits in banks and Short-term investments Term.

Cash on hand: existence of coins and banknotes, property of the company, both in national and foreign currency. It includes the Cash destined to the fund for minor payments (petty cash), to the exchange fund and any other fund of specific use, Postage Stamps, Received Checks Pending Deposits in Bank, Cash Income extracted from the bank for payroll payments and others Cash payments. Cash in Bank: Existence of coins and banknotes in demand deposits with the banks that the company operates, through current accounts. Payments are drawn against these accounts and they are deposited and collections and transfers are received. Short-term investments: Short-term financial investments made by companies with the aim of profiting temporarily free monetary resources. Includes Shares and Bonds issued by other companies, Treasury Bonds, Short-Term Debt Instruments, Certificates of Deposits, Fixed-Term Deposits and other forms of Short-Term Inventory, which due to their characteristics and the market in which they are traded are considered "almost money".

The realizable “gathers those goods and rights that must become Available”, such as: Accounts Receivable from Clients -open accounts-, Trade Receivables Pending Collection from Clients and Advances Granted to Suppliers.

Accounts Receivable: “reflect the value of Sales to customers, which are pending collection and are protected or supported by non-formal instruments of payment (invoices, receipts, etc.). It is possible that there is a percentage of Accounts Receivable past its due date and another percentage with danger or Risk of bad debt ^3. ” Receivables: they constitute a collection right in favor of the company, backed by formal payment instruments (Bills of Exchange and Promissory Notes, which are accepted or issued by customers pending collection), which can be discounted at the bank or at some financial institution, for which the account “Discounted Receivables” is used and they decrease to the value of the Receivables.Advance Payments: “correspond to operations with which the company has paid in advance in exchange for receiving services, products or merchandise at a future date. It includes the advance payment of any right that expires in the course of a year ”.

The Inventories collect the value of the Inventories that the company owns and that are its property. The Inventory “includes the value of stocks of raw material, auxiliary materials, production in progress or in process, finished products, semi-finished or semi-finished productions, spare parts and pieces, fuel, office supplies and any other auxiliary material; merchandise for sale or merchandise from marketing companies, both wholesale and from companies dedicated to retail sales. ” It is recommended to include defective and idle products and merchandise in items that recognize their condition.

Current Liabilities as one of the components of the Working Capital Fund.

The Current Liabilities is one of the masses of the Company's Liabilities ⁴ and are all the debts and obligations arising from the operations of the company and some eventual ones, which have a maturity period generally not greater than one year and which must be paid with funds from Current Assets (Demestre et al., 2001):

Accounts Payable: “they constitute Short-term debts contracted with the suppliers of the company, not backed by formal payment instruments, that is, through the open account modality, those that are covered only by invoices and whose terms they generally vary between 30 and 120 days. Effects to Pay: Short-term debts are supported by formal payment documents (Bills of Exchange and Promissory Notes), which are generally subject to interest. Depending on the origin, the effects payable can be: commercial, obligations with suppliers, banks, to formalize received bank loans and other sources. Advance Collections: "They are obligations contracted with clients who have anticipated payment, partially or totally." Stable Liabilities: “they are obligations that the company contracts in a stable way with the workers as a consequence of the operations, by owing them wages and vacations; obligations with the treasury when owing taxes; with the owners when owing them contributions or dividends ”.

Profitability and Risk

The category Risk ⁵ within financial theory is associated with variability and not only with loss, that is, what gives more variable, better or worse results is more risky (Demestre et al., 2001)

It is also very important to prepare the future; forecasting (proactive management) is very necessary. Nowadays companies can have a good relationship between Profitability - Liquidity, but to maintain it, they will have to foresee lasting benefits, the quality of the product or service and have positive cash flows.

According to (GE Gómez, 2004) and (Gitman, 1986), the higher the risk, the higher the profitability. This is based on the administration of Working Capital, at the point that the Profitability is calculated by profits after expenses, against the Risk that is determined by the insolvency that the company possibly has, to pay its obligations.

The ways to obtain and increase profits by theoretical foundation, are to increase Income through Sales and decrease costs by paying less for raw materials, wages, or services provided. This postulate becomes essential to understand how the relationship between Profitability and Risk is combined with that of effective management and execution of Working Capital.

Risk means danger for the company due to not maintaining enough Current Assets to:

Deal with your Cash obligations as they occur. Maintain the appropriate level of Sales (eg, deplete Inventory).

Having considered the previous points, it is necessary to analyze the key points to reflect on the correct administration of the Working Capital against the maximization of Profit and the minimization of Risk.

It is necessary to analyze those key points to reflect on a correct administration of the Working Capital against the maximization of the Utility and the minimization of the Risk.

Several authors, including (Gitman, 1986) and (GE Gómez, 2004), agree that the key points are:

Nature of the company: It is necessary to locate the company in a context of social and productive development, since the development of financial administration in each one is of different treatment. Capacity of Assets: Companies always seek by nature to depend on their Assets Fixed in a greater proportion than current to generate their profits, since the former are the ones that actually generate operating profits. Financing costs: Companies obtain resources through current liabilities and long-term funds, where the former they are cheaper than the latter.

It is important to note that compliance with the last two assumptions should not be generalized without first checking them and verifying the ability to generate profits from the Assets and the Cost of Debt.

Decreasing the level of investment in Current Assets while still being able to sustain Sales, can lead to an increase in the company's performance on Total Assets. To the extent that the explicit costs of Short Term Financing are lower than Medium and Long Term Financing; that is, the higher the ratio of Short-Term Debt to Total Debt, the higher the Company's Profitability will be.

Although short-term interest rates are sometimes higher than long-term rates, they are generally lower. Even when they are higher it is likely to be a temporary situation. Over an extended period of time we should expect to pay more for interest costs with Long-Term Debt than we would with Short-Term Loans, which are continuously renewed at maturity. Furthermore, when the use of Short-Term Debt instead of Longer-Term Debt is likely to result in higher profits, because the debt will be settled during periods when it is not needed.

When Short-Term Debt is often less expensive than Long-Term Debt, Short-Term Credit subjects the company to greater Risk than Long-Term Financing. This occurs for two reasons:

If the company borrows on a Long-Term basis, its interest costs will be relatively stable over time, but if you use Short-Term Credit, your interest expenses will fluctuate widely, occasionally becoming very high. borrowing large amounts on a short-term basis, you may find that you are unable to repay your debts and may also be in such a weak financial position that the lender refuses to extend you more credits; This could also lead to bankruptcy.

These profitability assumptions suggest a low ratio of Current Assets to Total Assets and a high ratio of Current Liabilities to Total Liabilities. Of course, this strategy will result in a low level of Working Capital. However, offsetting the Profitability of this strategy is the increased Risk for the company.

There is a direct relationship between the amount of Working Capital, Liquidity and Risk; “The greater the amount of Working Capital that a company has, the lower the Risk that it will be insolvent” and the greater the degree of Liquidity, the latter two varying in an equivalent proportion.

In general, current assets have a different return than fixed assets and the cost of current liabilities is different from that of long-term liabilities. Therefore, if the Return on Current Assets is less than that of fixed assets, the lower the proportion of Current Assets over Total Assets, the higher the Return on total investment and vice versa, something similar can happen with Liabilities: if Liabilities Current assets cost less than Long-Term Liabilities, the higher the proportion of Current Liabilities, the higher the firm's Profitability and vice versa.

In determining the appropriate amount or level of Current Assets, the management of Working Capital must consider the compensation between Return and Risk. The higher the current assets, the higher the liquidity of the company, if everything else remains the same. With greater liquidity, the risk is lower, but so will the profitability.

Taking into account the criteria set forth above by the different authors, we can come to a reflection of what, the optimal management of Working Capital consists of managing its components: Current Assets and current financing in an effective and efficient way, which allows to timely face the Short-term payment commitments, positively impacting the economic and financial results of the company and society, minimizing Risk and maximizing Profitability.

Net Working Capital Policies and Coverage: Investment Policies and Short Term Financing.

The Net Working Capital Policies are associated with the levels of Current Assets and Current Liabilities that are set to carry out the operations of the company, so it can be categorized taking into account three fundamental elements, which are:

Level set as a goal for each category of Current Assets. The way in which these Current Assets will be financed (Current Liability level). The effects of these levels on the Risk - Return alternative.

Figure 1 shows the close relationship between investment and financing, both Long-Term and Current, and the Company's Operations.

Short-term investment policies (current assets level):

Under certainty conditions, where the forecasts are perfect, to maximize profits, a company would maintain:

The exact Cash levels to face disbursements in a timely manner. The exact Accounts Receivable associated with an optimal credit policy. Just the Inventories necessary to satisfy the production and sale levels.

An increase in the values of Current Assets above the optimum necessary, would result in an increase in Total Assets without a proportional increase in returns, thus decreasing the return on investment. On the other hand, a decrease in these values may mean the inability to cover payments on time, stoppages in the production process due to a lack of Inventory and a decrease in Sales due to an inflexible credit policy.

Hence, uncertainty forces the "determination of the minimum balances required for each type of asset and the addition of a Security Inventory ⁶ " (Gitman, 1986).

Taking into account the Risk-Performance intercompensation, the policies that can be implemented as a result of the above are (Weston, 1998):

Relaxed policy (fat cat): It is a policy under which a relatively large amount of Cash, Negotiable Securities and Inventories is maintained and through which Sales are stimulated through a liberal credit policy, resulting in a high level Accounts Receivable. As a consequence of this policy, low levels of Risk and Profitability are obtained. Restricted policy (medium support): It is a policy under which the maintenance of Cash, Negotiable Securities, Inventories and Accounts Receivable is minimized; that is, relatively small amounts of Current Assets. As a consequence of this policy, the Company's Risk and Profitability will be elevated. Moderate policy:It is a policy that is located between the relaxed policy and the restricted policy where the high levels of Risk and Return are compensated with the low levels of these.

Figure 1: Relationship between investment and financing.

Short Term Financing Policies (level of current financing):

It is recurring to take all necessary measures to determine a financial capital structure, where all Current Liabilities finance effectively and efficiently Current Assets and the determination of optimal financing for the generation of profit and social welfare.

"A level of Sales that grows uniformly over the years will necessarily produce increases in Current Assets" (Weston, 1998). To the extent that Current Assets experience variations, the financing of the company will also do so, affecting the risk and Net Working Capital position of the company. Hence the importance of determining the way in which the company finances its fluctuating Current Assets, an affirmation that is graphed in figure 2. The current investment financing policies are:

Aggressive or compensatory policy: in this situation, the company finances all of its Fixed Assets with Long-Term Capital, but it also finances a part of its permanent Current Assets with short-term credits of a spontaneous nature. This is an aggressive position and the company would be subject to great dangers from rising interest rates as well as various loan renewal problems. However, Short-Term Debt is often cheaper than Long-Term Debt, and some companies are willing to sacrifice security for the opportunity to earn higher profits. This is a policy with high levels of Risk and Return. Conservative policy:Permanent Capital is used to finance all the requirements of Permanent Assets and satisfy some or all of the seasonal demands. In this situation, the company uses a small amount of non-spontaneous Long-Term Credit to satisfy its highest levels of requirements, but also satisfies part of its seasonal needs by "storing liquidity" in the form of marketable securities, such as Long-Term Loans. during the loose season. It consists of the use of Long-Term Capital to finance all permanent Assets and some temporary Current Assets. This is a policy with low levels of Risk and Return. Self-assessment or maturity coordination policy: this procedure requires that the maturities of the Assets and Liabilities be coordinated.This strategy minimizes the risk that the company is unable to settle its

obligations as they mature, trying to coordinate exactly the maturity structure of their Assets and Liabilities. This is a policy that seeks a balance between Risk and Return levels.

The three policies described above are distinguished by the relative amounts of Short-Term Debts. The aggressive policy demanded greater use of Short-Term Debts, while the conservative policy required the minimum of these resources, while the maturity coordination took into account an intermediate point.

Figure 2: Short-term Financing Policy.

Net Working Capital Coverage.

It is important for the company to determine with which mix of permanent capitals the Net Working Capital must be covered, which can be done with Long-Term Debts, with capital or with both, (Santandreu, 1989).

Consequently, the administration of the Net Working Capital has variables of great importance that are a key point for the administration carried out by the managers, directors and those in charge of financial management, which must include two fundamental aspects:

The magnitude of investment in Current Assets which is usually a relative measure of the level of total operating income. Financing of Current Assets which is a measure of the proportion of Short-Term Debt in relation to Long-Term Debt.

Each company will adopt a certain policy regarding its Short Term finances.

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38. www.uh.cu/facultades/economia/Contener/IIIreflexionespoliticaeconomica/ponenciascentrales/III4OrlandoNelidaTurismo.doc

39. www.uma.atenas.inf.cu/municipios/varadero.htm

40. www.umc.es/info/Psyap/taller/procedimientos/tsld002.htm

Conclusions

There are many definitions of Working Capital provided by the authors who have studied Operational Finance but all refer to the fact that it is defined as the funds or resources with which a company operates in the Short Term, after covering the amount of the Debts that they expire in that Short Term, this being the deduction of the Current Liabilities to the Current Assets. The origin and need for Working Capital are based on the unpredictability of the company's cash flows. The more predictable the future cash inflows, the less the Working Capital the company needs. Sufficiency of Working Capital enables the company to conduct its operations on the most economical basis and without financial constraints, and to cope with emergencies and losses without danger of financial disaster.The Administration of Working Capital refers to the management of its components: Current Assets and Current Liabilities, taking into account two fundamental elements for the entity: one, its position of liquidity and solvency, necessary for survival in the Short Term and the other, their level of Profitability, for which the correct or effective alternatives are those that manage to minimize Risk and maximize Profitability. Deciphering the behavior of Working Capital is of vital importance in the financial analysis, due to the close relationship it establishes with the operations that affect Current or Current items. Therefore, it is essential to analyze the Investment and Short-Term Financing Policies, the Efficiency and Efficacy in their use and the level of Risk.

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