How should a business use working capital analysis?Business should use working capitalanalysis to determine productivity. Working capital includes operatingliquidity and cash that a company has, this concept includes measuring that aswell as the short-term financial health of the organization.
According to Biery(2013), “Working capital is used to fund day-to-day operations at companies, soin addition to receivables, it could cover expenses…”. Analysis of workingcapital can help provide useful information for manages and investors, as wellas staying prepared for unpredictable occurrences that could arise, and makingsound financial decision. Understanding working capital is imperative to thesuccess of an organization. Which is more important to the short-term lender: the stock of cash or the flow of cash?Short-term lenders would find theflow of cash to be more important, as a flow of cash gives a company a steadystream of income. According to Mathuva (2015) “working capital management iscritical for both firms’ performance and survival” (para 1). Is it possible in today’s business to operate with no current liabilities? In today’s business, I would sayoperating with no current liabilities is not possible. Our text supports thisinformation when stating “Current liabilities, such as accounts payable, wagespayable, and taxes payable, are examples of liabilities due within a year,”(Byrd, Hickman, McPherson, 2013). Liabilities are simply put, a part of theoperation of the business.
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They are a company’s financial debt that developduring everyday operating of the business.Thank You,Rinda PfisterReferencesBiery, M.E.
(2013, April 12).Businesses seeking working capital—survey (Links to an external site.) Links toan external site. Forbes.
Retrieved fromhttp://www.forbes.com/sites/sageworks/2013/04/12/businesses-seeking-working-capital-survey/ Byrd, J., Hickman, K.
, &McPherson, M. (2013). Managerial Finance. Electronic version. Retrieved fromhttps://content.ashford.
edu/Mathuva, D. (2015). The Influence ofworking capital management components on corporate profitability.