Working capital reflects the amount of money businesses have at their disposal to cover immediate expenses. It is a financial metric that gives a fair projection of a business's current financial standing.
It is after the pandemic that several businesses are facing working capital challenges. The economic instability afterwards has affected all sorts of financial transactions and disrupted the supply chain system. Hence, companies must be vigilant about their working capital requirements and optimise them to continue business operations smoothly. In this regard, signing up with KredX and uploading invoices will instantly help businesses gather the necessary working capital.
Working capital is integral to the proper functioning of the business. It helps cover a business's short-term expenses, manage inventories, make payments, etc. The absence of adequate funds will lead to increased attrition rates, untimely payments, etc. Therefore, working capital plays a pivotal role in business and is essential for enhanced earnings and the firm's overall profitability.
Working capitals help businesses bridge financial gaps in a lean period and carry on with operational activities. However, as this financial metric determines the financing standing of a firm, business owners and financial analysts must keep it in check.
The most convenient way to analyse the working capital requirement of a company is to check the company's assets versus liabilities.
The availability of working capital determines a business's liquidity and short-term financial stability. Business bodies with robust working capital have the potential to grow and invest. On the other hand, inadequate working capital leads to a shortage of resources and a business's inability to clear short-term obligations.
Working capital boosts liquidity and facilitates smoother business production. Moreover, it ensures optimal utilisation of fixed business assets. It also helps maintain a cash reserve, allowing businesses to meet contingencies.
Here are the following categories under Working capital:
Working capital management is a critical facet responsible for the continuity of the supply chain. Therefore, irrespective of a business's size and operation scale, it is essential for business bodies to manage the working capital.
Supply chain finance is an effective means of boosting the working capital of a business. It balances the entire business ecosystem and mitigates the financial gap between buyers and suppliers.
Businesses seeking to boost their cash flows can fall back on India's largest supply chain financing company, KredX, and get instant working capital to manage their payables and receivables. The company empowers businesses with customer-specific supply chain finance solutions and resolves all working capital hindrances.
Working capital reflects the liquidity scenario of a company that shows the financial health of a company. Supply chain financing platforms like KredX helps businesses raise adequate working capital for sustenance and growth.
The formula for net working capital is the difference between a business's current assets and current liabilities. This calculation helps business owners understand the amount of money available to meet current expenses. Net working capital = Current assets – Current liabilities
The working capital cycle is the total time taken for the total net working capital (current assets and liabilities) to turn into cash. It highlights an organisation's capability and proficiency in managing liquidity. The formula for calculating the working capital cycle is expressed as: Working capital cycle = Inventory days + Receivable days - Payable days
Inventory is classified as an essential part of a business's current asset. It comprises the stock of finished goods and raw materials. On the other hand, working capital is the difference between a company's existing assets and current liabilities.
Seasonal variable working capital is the additional working capital that a business requires in the year's peak season. In such cases, businesses may need financial assistance to meet the working capital demand.