1. What is the Working Capital?
Do you know what the working capital and how does it influence your business?
Business management and direction requires being familiar with certain important economic terms such as working capital.
The financial resources they condition the viability of the project, therefore, you must be informed of its situation and expectations.
2. Deciphering what working capital is
Working capital, also known as working capital or working capital, refers to short-term assets financed with long-term resources.
It is calculated using the difference between current/current assets and current/current liabilities and provides information on the liquidity y solvency of the company in the short term.
Remember that current assets include cash, inventories and short-term collection rights (one year).
Their interpretations are as follows:
- Positive working capital: Current assets are greater than current liabilities. In this scenario, the company is in good financial health, can meet its immediate payment commitments, and has no solvency problems.
- Zero working capital: Short-term debts cancel current assets. This situation is worrisome and could lead to insolvency if a customer is late in paying, as the company will not be able to meet its payment commitments.
- Negative working capital: Current assets are less than current liabilities. The company is insolvent, it cannot meet its payment commitments. This is a very adverse scenario. To avoid bankruptcy, the company must renegotiate its debts, restructuring its debt from short to long term and improving its customer base.
As you can see, it is a very easy to calculate and understandable ratio that provides information on both the economic situation and the financial resources available to the company.
Therefore, it is a business financial health indicator very useful.
3. The ideal level
In reality, there is no perfect or ideal ratio.
Although it is true, a positive working capital guarantees us a minimum treasury to deal with any unforeseen situation in the immediate term.
Therefore, we must strive to make this ratio as positive as possible.
4. How to solve problems with working capital
there are different Preventive actions to ensure that this ratio is as adjusted as possible to the target set.
Among them, we highlight:
- – Limit the weight of stocks. If you manage to reduce your inventory, you will idle fewer resources. Therefore, we recommend that you be careful with discounts for large purchases, they may not compensate you for storage costs and their derivatives.
- – Optimize the management of your inventories and get rid of outdated stock. Don't accumulate them in aeternum in your warehouses: liquidate them to obtain quick income.
- – Complete the payroll of employees with savings plans. They benefit from attractive tax discounts and your company will deduct those amounts from corporate tax.
- – Get faster delivery times from your suppliers and try to automate replacements.
- – Balance the collection and payment dates of your invoices. The ideal is to charge your customers before you pay your suppliers. If it is not possible to achieve this, you can resort to alternative financing formulas, such as the promissory note discount or Factoring as a Financial Tool for Managing Seasonal Fluctuations in Trucking.
- – Anticipate the upcoming investments. You must analyze their costs, try to minimize them and, if necessary, postpone or avoid them if the benefit does not outweigh the cost you must incur to obtain it.
- – Have experts capable of helping you. In WorkCapital We put at your disposal a team of professionals with great knowledge in the financial sector who will provide you with alternative solutions, fully adapted to your needs.
Therefore, analyse, monitor and adjust working capital It is essential for the future of your business.
You need to act on current assets and liabilities constantly to ensure that you can meet immediate obligations.
It is not a minor issue, because poor forecasting and management can jeopardize the future of your project.
