What is working capital analysis and why is it important?

What is working capital analysis and why is it important?

Working capital analysis assesses a company's short-term financial health by evaluating its current assets and liabilities. It's crucial for ensuring that a business can meet its short-term obligations and invest in growth.

How do you calculate working capital?

You calculate working capital by subtracting current liabilities from current assets. The formula is: Working Capital = Current Assets - Current Liabilities.

What are some common issues that can arise from poor working capital management?

Common issues include cash flow problems, inability to pay suppliers, missed opportunities for growth, and potential insolvency.

Can you give me an example of a company that improved its working capital?

Sure! For instance, a retail company might streamline its inventory management, reducing excess stock, which improves cash flow and working capital.

What strategies can businesses use to improve their working capital?

Businesses can improve working capital by optimizing inventory levels, speeding up receivables collection, extending payables, and reducing unnecessary expenses.