Working Capital

lifeblood of a business
1. working capital = current assets - current liabilities
How much is needed?
1. Sufficient needed to prevent a business from becoming illiquid + unable to pay its debt
  1. too high a level of WC = disadvantage
    1. too much capital tied up in stocks, debtors + idle cash = the return that money could earn elsewhere
  2. working capital cycle
    1. the period of time between spending cash on the production process & receiving cash payments from customers
      1. the longer this time period (from buying materials + receiving payment) = the greater the working capital needs
Cash vs. Profit
1. Profit does not pay the bills - cash does
  1. common for profitable businesses to run short of cash
2. Cash flow
  1. relates to the timing of payments to workers and suppliers + receipts from customers
    1. the sum of cash payments made to a business (inflows) - the sum of cash payments made by it (outflows)

Zusammenfassung der Ressource

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