From our friends at Sollertia:
‘Working capital’ is one of those phrases frequently used in business, but often misunderstood. With this in mind, we at Sollertia thought it was about time somebody put a really good infographic together on the subject.
What is working capital?
Put in its simplest terms, working capital is the money to which a company has immediate access. When valuing itself, a firm may include the land and property it owns, along with fixed assets like machinery. These have value of course, but the cash is locked up in them, so getting access to it would take time and involve major changes.
Calculating working capital means weighing up your current assets against your existing liabilities. It might sound complex, but the infographic gives the lowdown on how you should go about this, and what you should and shouldn’t include.
What working capital trends have been identified?
According to a 2014 survey carried out by REL Consultancy, some positive news is emerging from studying the working capital of large firms. The cost of goods and the amount of total debt have dropped for a start, and free cash flow has jumped by more than 8%.
Companies still have a lot to do when it comes to working capital management though, as a whopping £720bn could be saved through shrewder practices. If you find that amount hard to visualise, the infographic can help you out!
So how do I boost my working capital?
We’ve picked out six key routes to having healthier working capital at your disposal:
- Keeping close tabs on you cash flow ratio
- Using a savvy collection system
- Finding marketing avenues to boost sales income
- Encouraging your clients and customers to pay in full and on time
- Careful management of accounts payable
- Exploring possible tax breaks