Introduction

 

Working capital is an important metric in deciding a business' long-term financial health, irrespective of its size or industry field. By comparing the existing assets with the current liabilities the working capital available to a company can be calculated. That shows the company how, after short-term liabilities are paid off, the liquid assets remain.

The efficient management of working capital should be a top priority for the CFO, since it constitutes a precise barometer to determine the financial health of the organization over the long term and ensures that the company still retains a reasonable cash flow in order to fulfill its short-term commitments. (Working Capital (NWC), n.d.)

However, businesses also have cash flow issues that affect their ability to grow, develop processes and even run their business if not efficiently handled. However, there is now a peek into hope, as 11 of the 17 sectors have since improved working capital efficiency, according to PWC’s Annual Global Working Capital Report.

In order to ensure that the organization's procurement to pay process is optimized from the perspective of both the buyer's cash conversion cycle and the cash flow needs of suppliers, it is necessary to establish coordination and streamlined process between purchasing teams and accounting payment teams. (Working Capital: What Is It and Why It's Important, n.d.)

Companies would typically aim to acquire high working capital. A well-managed business with a high degree of working capital shows a higher growth potential. A high level of working capital, including enhanced liquidity, operating efficiency and increased profit, can also benefit from many benefits.