How To Use Your Capital Efficiently
Working capital management aims to improve the company’s liquidity and reduce capital requirements. This leads to more profitability and company value. At the same time, attention is drawn to important processes that become faster and more economical with working capital management. With good capital management, companies such as san jose towing can increase their profits.
Make inefficiency in current assets visible
Money should be used sparingly and efficiently. But it also has to be invested in order for a company to function at all. The tangible assets in the balance sheet, i.e. investments in machines, systems, and participations, are usually analyzed and evaluated very precisely, and their use is optimized. There are numerous methods and tools for investment calculation and for the analysis of profitability. In contrast, companies often treat their working capital very carelessly.
Working capital management takes a closer look at current assets and the capital tied up there. Behind this are usually processes that lead to more “working capital” being tied up in the company than is actually necessary.
The objective of working capital management
The aim of working capital management is that as little capital as possible is tied up in the company. Processes must be designed in such a way that payments are offset by payments as quickly as possible. Customers should pay bills quickly. Liabilities to suppliers should be settled rather late. The inflow of capital is accelerated, the outflow of capital is slowed down and the cash flow as the balance of deposits and withdrawals is optimized.
The result: more money is available for investments and liquidity is improved. The company can tackle important tasks with what is known as internal financing. You can often save money too. Some experts believe that working capital management measures can reduce tied-up capital by 10 to 30 percent. Overall, the company works more economically with its resources and capital.
The company value increases
With active working capital management, the value of the company can increase. If it is possible to reduce the balance sheet items’ inventories and receivables through working capital management, capital is released. This initially flows into the cash register. In a second step, this money can then be used to reduce the need for borrowing and to repay loans without reducing the company’s performance. This means that the turnover remains the same and the result can even increase if the interest expense decreases because less borrowed capital is required.