Build a strong Working Capital
Working capital is critical for businesses to continually maintain and assess their performance and market standing. It’s a metric that measures a company's liquidity, operational efficiency, and short-term financial health. If a firm has significant positive working capital, it should be able to invest and develop. If a company's present assets do not equal its current obligations, it may have difficulty growing or repaying creditors, and it may need further infusion of capital to stay afloat.
Working capital that is comparable to or greater than the industry average for a company of comparable size is generally regarded as adequate. A lack of working capital may imply a danger of financial difficulty or default. If the net working capital value is zero or higher, the company can meet its present commitments/obligations. In M&A transactions, Working Capital plays a significant role in valuations – though they might not influence the complete end value, they will definitely influence the decision making process.
Strong Net working capital also indicates how rapidly a firm can expand. If a company has a large amount of cash on hand, it may be able to grow its operations fast, for example, by investing in better equipment. Efficient working capital management allows a firm to function more efficiently and perhaps free up some cash. This may be used to pay off debt or put money into a profitable endeavor.
We at QuarkCube, as part of our Enterprise Strategy offering, work with companies, small and big to ensure metrics are aligned to measure Working Capital effectively. Also, we help companies to streamline their internal processes to have a strong working capital thereby increasing the overall company outlook.
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