Working capital is your current assets less your current liabilities.
It demonstrates that if a business has sufficient net funds available to meet its financial obligations – remains a Going Concern.
The accounts that effect working capital include:
- Cash at bank
- Work in progress
- Inventory / Stock
- Accounts receivable
- Accounts payable
Balance Sheet | Increase | Decrease | |
Cash at bank | Funds that you have immediately available |
|
|
Work in Progress | Partially completed goods / services used for sale. |
|
|
Inventory / Stock | Items held during the normal course of business for sale |
|
|
Accounts Receivable | Funds owed to you by clients / customers |
|
|
Accounts Payable | Funds that you owe to your suppliers |
|
|
Examine what triggers each account in terms of dollars and average days.
To improve your cash flow calculate your working capital cycle or Cash Flow Cycle (CFC).
This is a great calculation as it shows the amount of time taken from when you pay for your inventory and when the cash from the sale is banked.
If you would like to discuss further, please contact us:
McNamara & Company - Chartered Accountants, located minutes from the Melbourne CBD
www.mcnamaraandco.au/contact-us
Phone +61 3 9428 1062
Email admin@mcnamaraandco.au
Please refer to disclaimer at the bottom of the page.
