ABSTRACT This paper proposes a goal programming model for working capital management. Goal programming is necessary to model the working capital decision, as a balance has to be achieved between the conflicting objectives of liquidity and profitability. The model determines, for given working capital turnover and fixed assets turnover ratios, how funds should be maintained between working capital/current assets and fixed assets to achieve targeted levels of liquidity and profitability, whilst minimizing the opportunity cost/loss of excess liquidity. INTRODUCTION Proper planning is necessary for the efficient working of any organization. This can be in terms of marketing, production/operations, human resource, and financial plans. There should be proper flow of funds for running any business. This fund is called working capital. If at any point of time the organization does not have sufficient funds to meet its short-term debts such as creditors and salaries as well as day-to-day expenses it may become technically insolvent. On the other hand, if it is very conservative it will have a surplus of working capital, which will adversely affect profits. The trade-off between profitability and risk is the key to working capital management. Too little working capital increases profit but reduces liquidity, as current assets are more expensive than fixed assets. For instance, if a management feels that worker training is a cost, they will apportion less funds for it. If on the other hand a management sees it as an investment in manpower, the funds allocated would increase substantially. It is applicable in any case either for procurement, inventory, storage, processing, distribution and human capital and other investment decisions 2. Businesses must continuously innovate and transform themselves to stay ahead of competition in this fast-growing world. An efficient working capital management system has to be designed to run the business and make profits in the long run. As costs are ever-increasing, companies have to make efficient use of funds in managing the procurement, inventory, processing and distribution of finished product to the existing customers, and it is common in many business decision-making situations that certain goals or objectives of the firm can only be met at the expense of other goals. If it is not possible to quantify the exact cost-benefit trade-offs among these goals, it may be necessary for decision makers to rank order the various goals so that the less important goals are pursued only after the more important goals are achieved or when no further progress toward goal achievement is possible. This paper formulates the working capital decision as a goal programming model, balancing the conflicting objectives of liquidity and profitability. The model determines, for given working capital turnover and fixed assets turnover ratios, how funds should be maintained between working capital/current assets and fixed assets to achieve targeted levels of liquidity and profitability, whilst minimizing the opportunity cost/loss of excess liquidity. DISCUSSION: Several studies have stressed the importance of effective working capital management. Agarwal (1988) had formulated a goal programming model for working capital decisions, but it had some serious limitations, especially its over-emphasis on liquidity. The model proposed in this paper extends the scope of Agarwals model, whilst retaining the concept of a liquidity profitability trade-off. The results of the model suggest that working capital, and inventory in particular, should be streamlined to profitability. This approach is thus in conformance with the studies of Rafuse (1996), Cote et al (1999), Garcia-Teruel and Martinez-Solano (2007), Filbeck and Krueger (2005), Singh (2008), and Singh and Pandey (2008). In particular, the relationship between different components of working capital, fixed assets, sales, and profits needs to be examined in greater depth and modeled accordingly. There is vast scope for extending the model proposed in this paper. The proposed model is a static, aggregate-level model; a dynamic/multi-stage micro-model, with appropriate interlinkages between the different variables, incorporating the working capital cycle concept and time value of money, would give more detailed results. Also, the proposed model has some limitations: it considers a specific form of liquidity and profitability goals/constraints, which may not have taken some other relevant parameters into consideration; and it assumes stable turnover ratios, which may limit its applicability in practice. Further, the proposed model is a linear programming model, and thus deals only with the linear behavior of working capital; nonlinearities are not taken into consideration.

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