Cash & Liquidity ManagementWorking capital: an animated guide

Working capital: an animated guide

Working capital is an important indicator of a company's financial health - and having access to it can be a powerful way of improving liquidity, as well as building relationships with buyers and suppliers. The Global Treasurer has made a short animation to explain.


 

Working capital is a useful way of establishing a company’s financial health. Essentially a ratio between an organization’s assets and its liabilities, it can be used to assess how efficiently that business operates and whether it is an attractive proposition for investment.

A healthy working capital ratio is traditionally anywhere between 1.2 and 2.0. Anything below 1.2 indicates negative working capital, and suggests that a company may have difficulties with liquidity. A ratio above 2.0 suggests that a company is not making the best use of its assets and is therefore operating inefficiently.

As part of a Supply Chain Finance strategy, having access to working capital is a good way for a company to improve its relationship with both buyers and suppliers. It gives a company the ability to pay suppliers before it has received payment owed from buyers, meaning it can be more flexible and adaptable to unexpected shifts in the market.

By using working capital to improve their business’s cash flow, treasurers can reduce their exposure to risk and free up cash that would otherwise be trapped in the financial supply chain.

Understanding working capital, and using it effectively, can lead to a virtuous cycle that benefits your business, your buyers, your suppliers and  your customers.

Related Articles

The data imperative for trade finance

Trade Finance The data imperative for trade finance

17h Mike Walker
SWIFT and ONPEX embark on cost-efficient payments collaboration

Payments SWIFT and ONPEX embark on cost-efficient payments collaboration

6d The Global Treasurer
ONPEX and Supercapital partner for international payments solution

Payments ONPEX and Supercapital partner for international payments solution

6d The Global Treasurer
Innovation and commoditization: extracting value from the new era of payments

Payments Innovation and commoditization: extracting value from the new era of payments

1w Abhijit Deb
Four skills for effective cash forecasting

Cash Forecasting Four skills for effective cash forecasting

1w Martin Gillespie
When it comes to liquidity, price isn't everything

Cash & Liquidity Management When it comes to liquidity, price isn't everything

2w Tim Cook
Payments at a price: the true cost of in-house bank connectivity

Payments Payments at a price: the true cost of in-house bank connectivity

2w Bob Stark
Suppliers increasingly concerned about late payments and growing credit risks

Accounts Receivable Suppliers increasingly concerned about late payments and growing credit risks

3w The Global Treasurer