Working capital management is critical to an organization’s ability to meet its short-term obligations. When proposing new projects or investment ideas for corporations, it is critical to consider working capital red flags such as excess credit use by the business or a low cash balance. Managing such issues early on can help corporations acquire a competitive advantage in the marketplace.
Prompt
Using the business you selected for Project Two, complete the calculations for determining working capital, and describe their relevance in assessing financial health.
Specifically, you must address the following rubric criteria:
Financial Statement(s): Explain the various financial statement(s) needed to calculate a business’s working capital and how each financial statement is used. Provide examples to support your claims.
Working Capital’s Role: Discuss how effective working capital management supports a healthy business.
Working Capital Interpretation: Use the appropriate formula to calculate working capital, then discuss the business’s current financial liquidity position.
For example, does the business have sufficient working capital on hand to address bills to suppliers? Will there be potential cash inflow at the end of the year?