What is the Working Capital and why is it important?
Posted: Thu Dec 05, 2024 9:00 am
Working capital is the amount that a company needs to carry out its activities in a normal and balanced manner over a period of time. In simple terms, it is a type of financial cushion that companies must ensure in order to obtain liquidity in the short term.
How Important is Working Capital?
The working capital is a great asset for financial emergencies when the company cannot cover all its costs and expenses. This amount enables the company to survive during critical times, economically speaking.
The working capital allows the company to cover its regular expenses, such as ig phone number data to suppliers or employee salaries, and even cover unexpected costs. Ultimately, it allows the company to respond effectively to any type of emergency or loss without having to declare insolvency or bankruptcy.
This tool also makes it easier to assess the company's economic status, providing a real idea of what it needs to be economically viable: what amounts it has to pay and what it should receive to have a balanced business.
How to Calculate Needs and Working Capital?
Working capital requirements are simply the sum of customers and stocks, minus suppliers.
WORKING CAPITAL NEEDS = CUSTOMERS + STOCK - SUPPLIERS
To calculate the working capital, the company's assets and liabilities must be taken into account. Current assets represent financial inflows (customer payments, stock and cash on hand), while current liabilities are all the company's expenses/outflows (payments to suppliers, employee salaries, taxes, bank loans, etc.).
How Important is Working Capital?
The working capital is a great asset for financial emergencies when the company cannot cover all its costs and expenses. This amount enables the company to survive during critical times, economically speaking.
The working capital allows the company to cover its regular expenses, such as ig phone number data to suppliers or employee salaries, and even cover unexpected costs. Ultimately, it allows the company to respond effectively to any type of emergency or loss without having to declare insolvency or bankruptcy.
This tool also makes it easier to assess the company's economic status, providing a real idea of what it needs to be economically viable: what amounts it has to pay and what it should receive to have a balanced business.
How to Calculate Needs and Working Capital?
Working capital requirements are simply the sum of customers and stocks, minus suppliers.
WORKING CAPITAL NEEDS = CUSTOMERS + STOCK - SUPPLIERS
To calculate the working capital, the company's assets and liabilities must be taken into account. Current assets represent financial inflows (customer payments, stock and cash on hand), while current liabilities are all the company's expenses/outflows (payments to suppliers, employee salaries, taxes, bank loans, etc.).