We can hear our clients now! How possibly could working capital (isn’t that cash flow?) be bad for my firms financial health. Let’s talk about that.The technical financial folks define this as a very basic calculation that even the non financial business owner can do – simply deduct your current liabilities from your current assets (from your balance sheet statement) and, voila! Congratulations, you have working capital. Hopefully that number is a positive number, because when it’s negative you’re technically insolvent and that’s a subject and solution for another day!Anyway, our number is positive – that’s good, right. Not necessarily, and that’s the premise of our info we share here, because if you have positive working capital your funds are tied up in receivables, inventories and pre paid items.It is therefore very important to understand what makes up working capital, how you can monetize or cash flow it, and most importantly, but often totally overlooked, how you can measure business capital.
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