Working Capital

Working capital is essentially an assessment or evaluation of a company’s efficiency and short-term financial health. A better understanding of the calculation and assessment comes from the working capital ratio calculation formula: Working Capital= Current Assets-Current liabilities. When a company is able to pay off any short-term liabilities it may have incurred it is referred to as positive working capital. On the other hand, if the company is unable to do so, the working capital is labeled as ‘negative’. The current assets with the help of which a company could address the paying off of incurred debt include liquid cash, business accounts receivable from outside parties and the business inventory.

The working capital of a company is also referred to as the ‘net working capital’. In event of the company current assets not exceeding the liabilities at hand, the business is likely to have trouble paying back creditors and this could also result in bankruptcy. If unmonitored and treated, the decline in the working capital ratio could indicate a closure and warrant further analysis, in the long run. The working capital of a company also gives prospective investors a peek into the company's operational efficiency. The cash caught within the business inventory and that owed by customers cannot be utilized to clear company obligations.

The dedicated site www.commercialmagnet.com effectively highlights how the working capital works for the fund-in-hand optimization of a company. When assessing, evaluating or comparing the working capital loans within different periods of business, it is possible to observe how slow collection results in problems in the company's operations. The management needs to maintain an effective and time frame defined managerial strategy for accounting. This needs to be taken on with the intent of maintaining efficient levels of the current assets and current liabilities. This in turn results in the working capital ensuring that the company has sufficient liquid cash flow meet short-term debt and operation expenses.

In the core competency based business arena today, it ahs become imperative for the implementation of an effective working capital management system. This helps the company to improve earnings and subsequently, the profit margins. The two main components of the working capital management strategy include thorough ratio analysis and effective management of individual aspects. The main operation ratios of a working capital management system include the calculations of the working capital ratio, the turn-over of the inventory and the company collection ratio. A visit to www.commercialmagnet.com enables a better understanding of the ratio analysis requirement to lead the management in the quest to identify areas of focus. The areas of focus commonly include effective and timely inventory management, liquid cash or cash-in-hand management, summary and updating the accounts receivables and payable and management of the overall processes.

www.commercialmagnet.com is a great resource to tap for a better understanding of how the working capital works for a business. The cutthroat competition and the uphill race have made it mandatory for every business to keep a proper fund management team in place. Today, there is dedicated software that takes care of the same, eliminating the need for manual updates.