Working Capital
What is working capital and why is it important for businesses?
Working capital is the measure of a business's liquidity and its ability to meet short-term obligations. It is important for businessesto ensure smooth day-to-day operations, cover short-term expenses, manage cash flow, and seize opportunities for growth. Insufficient working capital can lead to financial instability and hinder a business's ability to operate effectively.
How can businesses effectively manage their working capital?
Businesses can effectively manage their working capital by optimizing the management of their current assets (such as inventory, accounts receivable) and current liabilities (such as accounts payable, short-term debt). This involves strategies such as improving cash flow, reducing operating cycle time, implementing efficient inventory management, negotiating favorable payment terms, minimizing credit risk, and maintaining a balance between liquidity and profitability.