Working capital is the amount used by a business to meet its day to day operations, it represents the financial health of a business. Generally Working capital amount is derived by subtracting current liabilities from current assets of a business.
Working capital formula = Current assets — Current liabilities
Working capital is of prime importance for every business, as it is a key driver for the growth, sustainability and profitability of a business. The businesses who thrive in the long run are generally those who pay importance to working capital management, and they get rewarded for their behavior in terms of value addition to their business and in many more ways.
Now let’s discuss about some working capital objectives
Strengthening liquidity position
Working capital helps a business in maintaining its liquidity position as it helps a business in paying its short term debts and in getting insights about business financial health and efficiency.
Hylobiz has made it quick and easier for businesses to manage their working capital as on Hylobiz dashboard a business can easily get real time updates about their payments and receivables.
Improves decision making
With working capital a business can draw its blueprint in the right manner by analyzing the use and sources of its fund and through this a business enjoys better decision making, which adds value to their business and profitability.
Acts as shield
Working capital prepares a business to meet their day to day operations effectively and efficiently. It also makes a business ready for any future financial risk or any inevitable contingency.
Working capital also plays a crucial role in boosting a business solvency position.
Improves return on capital employed
If a business is exercising due diligence in managing its working capital then it will help the business in generating greater returns.
By managing its inventory , trade payables and trade receivables ,a business enjoys more liquidity and also makes the most out of it. Also a business can improve their shareholder’s wealth maximization objective by forecasting and using correct capital mix.
Shortens Operating cycle
With optimum usage of working capital a business can shorten its operating cycle as well.
As it will improve their inventory turnover ratio, debtors turnover ratio and business will be able to generate more cash in less time, it will also help a business to grab available opportunities in the market.
Broadens growth opportunities
By optimising its working capital a business can enjoy more growth opportunities such as tapping a new market or a new product.
It also improves the shareholder’s wealth maximization objective of a company by reducing the company’s cost of capital.
Working capital also helps a business in building their credit score and hence it makes many finance options available to them at cheaper rates.
Hylobiz also helps a business to access easy and quick loans on its platform and the best part is that business reports (Hylobiz provides various reports such as inventory, profit & loss report to a business ) will work as collateral for them.
With Hylobiz an SME can digitize their journey by integrating their existing ERPs with Hylobiz platform, it also automates their receivables and payables.
Hylobiz dashboard helps a business in correct estimation of its working capital requirement.
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Originally published at https://hylo.biz on September 9, 2021.