Goodman Corporate

What Is Working Capital?

Working capital is a key financial metric that represents the difference between a company's current assets and current liabilities. It is a measure of a company's short-term financial health and its operational efficiency.

Working capital is calculated using the formula:

Working Capital = Current Assets - Current Liabilities

Current Assets: These are assets that a company expects to convert into cash or use up within one year. Examples include cash, accounts receivable, and inventory.

Current Liabilities: These are obligations that a company needs to settle within one year. Examples include accounts payable, short-term debt, and other similar liabilities.

A positive working capital indicates that a company has sufficient short-term assets to cover its short-term liabilities, while a negative working capital suggests potential liquidity problems.

How Does It Work?

Working capital plays a critical role in a company's day-to-day operations. Here's how it functions:

Cash Management: Companies need to maintain an optimal level of cash to manage day-to-day expenses such as wages, rent, and utility bills. Effective cash management ensures that the company can meet its short-term obligations.

Inventory Management: Companies must efficiently manage inventory to have enough products available to meet customer demands without over-investing in stock. Proper inventory management helps in maintaining a balance between demand and supply.

Accounts Receivable and Payable: Efficient management of accounts receivable and payable is crucial. By collecting receivables promptly and delaying payables (without affecting relationships), companies can improve their cash flow.

Operational Efficiency: Companies use working capital to fund their operations, ensuring they have the resources needed to produce goods and services.

What Are The Benefits?

Effective management of working capital offers several benefits:

Improved Liquidity: Proper working capital management ensures that a company can meet its short-term obligations, reducing the risk of financial distress.

Operational Efficiency: By optimizing working capital, companies can streamline operations, reduce costs, and improve productivity.

Flexibility: Adequate working capital provides companies with the flexibility to seize investment opportunities or manage unexpected expenses without needing to resort to debt.

Enhanced Profitability: Efficient working capital management can lead to cost savings and improved profitability. Reducing excess inventory and improving receivables collection can lower operating costs.

Increased Creditworthiness: A strong working capital position can enhance a company's creditworthiness, making it easier to secure financing at favourable terms.

Availability of working capital is a crucial indicator of a company's financial health and its ability to sustain operations in the short term. Effective working capital management can lead to operational success and financial stability.

Why Choose Us?

Experience

We have been trading for over 18 years, you are in experienced, professional hands.

We have handled transactions from as little as £25,000 through to £60,000,000 with more than £3 billion funded across UK SME's to date

Leaders

We are leaders in the commercial finance broker field within the UK.

Our Founder and Chair was the Chair of our National Trade Body for over 10 years, he knows what good looks like and leads from the front when it comes to all aspects of commercial finance.

Expert Guidance

Our expert guidance puts you and your business at the centre of what we do.

With our gold standard, “hand-held, and cradle to grave” service, you’ll be looked after right through from the initial inquiry until your funds are released.

Business Owners

We understand the struggles and priorities of running a business, we are business owners ourselves.

Why not let us deal with the paperwork and sourcing finance while you deal with your day-to-day operations?

Goodman Corporate Finance is a trading style of Goodman Corporate Consultancy Ltd. Company no 5364029.

Goodman Corporate Finance is an independent commercial finance brokerage and not a lender. We may receive payment from the finance provider should you decide to enter into an agreement with them. Goodman Corporate Consultancy Ltd is Authorised and Regulated by the Financial Conduct Authority under number 733340. Goodman Corporate Finance is registered with the ICO no. Z1828753.

Working Capital Solutions