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Working Capital: What It Is and Why It Matters


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Working capital is a key indicator of a business's financial health. It represents the cash a business has available to cover day-to-day expenses. By understanding working capital and how to manage it effectively, businesses can maintain liquidity and financial stability.


Working capital is calculated by subtracting current liabilities from current assets. This represents the cash a business has available to cover its short-term obligations. A positive working capital balance is essential for maintaining liquidity and ensuring that a business can cover its expenses.


To manage working capital effectively, it is important to monitor cash inflows and outflows. This involves tracking accounts receivable and accounts payable, and managing inventory levels to ensure that you have enough cash on hand to cover expenses.


Finally, consider using working capital management tools such as cash flow forecasting and budgeting. These tools can help you manage your cash flow and ensure that you have enough working capital to cover your expenses and invest in growth.


In conclusion, understanding working capital is critical for business success. By monitoring cash inflows and outflows, managing inventory levels, and using working capital management tools, businesses can maintain liquidity and ensure that they have the resources they need to succeed.

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