Optimization of current assets
Posted: Tue Jan 21, 2025 3:50 am
How to manage working capital
So let's look at some strategies you can apply when you have a positive background case and when you have a negative background case. Both require attention, although clearly the negative background case needs to be treated with much more care.
When current assets exceed liabilities, you have a positive working capital, which is the most ideal case. However, this does not mean that you should not be careful, as you may have products in inventory that are difficult to sell or customers with long payment terms.
If so, there are strategies you can apply in your business to better manage current assets:
Look for financial investments that will allow you to make quick profits. This way, you will be taking advantage of the company's additional resources to make more profits.
Optimize your customer collection management so that payment delays are minimal and you can get the money without any problems.
The way inventory is managed can also impact working capital. Avoiding overstocks and inventory shortages will increase business efficiency in the long run.
Finally, you can increase your fixed or non-current assets. This is an investment that will help you improve your company's position in the long term.
Control of current liabilities
However, when current liabilities exceed assets, there is an imbalanced position that does not favor your company. This implies that fixed assets must be used to cover immediate debts, which is not convenient for any business.
To improve this situation and avoid a lack of liquidity, strategies such as the following can be applied:
Marketing strategies can be used to get rid of inventory products that are not easy to sell.
Company partners can make an additional contribution to get out of short-term debt.
Request a deferral of payments to the Treasury, so that the money can be used for list of south korea cell phone number other, more immediate payments.
Negotiate with suppliers and request longer payment terms. This should only be done in emergency cases so as not to affect business relationships with these suppliers.
These are some strategies you can apply to try to deal with your short-term debts. There is also the option of applying for loans, although this should be a last-minute resource to avoid obtaining more liabilities in the long term.
Working capital analysis
Not all businesses have the same needs, since everything depends on the economic activity they carry out and their size. However, the analysis of the working capital follows the same principles and, in general, always offers a realistic view of the company's financial situation in the short term.
In this sense, there are some very useful indicators that you should know when analyzing the liquidity of your company.
The first is the FM ratio, which is calculated simply by dividing assets by current liabilities. If the result is between 1.5 and 2, you can say that you have sufficient working capital to meet any debt. Having more than 2 indicates that you have stagnant resources that can be invested, while having less than 1 indicates that the fund is negative and you have a liquidity problem or lack of working capital.
So let's look at some strategies you can apply when you have a positive background case and when you have a negative background case. Both require attention, although clearly the negative background case needs to be treated with much more care.
When current assets exceed liabilities, you have a positive working capital, which is the most ideal case. However, this does not mean that you should not be careful, as you may have products in inventory that are difficult to sell or customers with long payment terms.
If so, there are strategies you can apply in your business to better manage current assets:
Look for financial investments that will allow you to make quick profits. This way, you will be taking advantage of the company's additional resources to make more profits.
Optimize your customer collection management so that payment delays are minimal and you can get the money without any problems.
The way inventory is managed can also impact working capital. Avoiding overstocks and inventory shortages will increase business efficiency in the long run.
Finally, you can increase your fixed or non-current assets. This is an investment that will help you improve your company's position in the long term.
Control of current liabilities
However, when current liabilities exceed assets, there is an imbalanced position that does not favor your company. This implies that fixed assets must be used to cover immediate debts, which is not convenient for any business.
To improve this situation and avoid a lack of liquidity, strategies such as the following can be applied:
Marketing strategies can be used to get rid of inventory products that are not easy to sell.
Company partners can make an additional contribution to get out of short-term debt.
Request a deferral of payments to the Treasury, so that the money can be used for list of south korea cell phone number other, more immediate payments.
Negotiate with suppliers and request longer payment terms. This should only be done in emergency cases so as not to affect business relationships with these suppliers.
These are some strategies you can apply to try to deal with your short-term debts. There is also the option of applying for loans, although this should be a last-minute resource to avoid obtaining more liabilities in the long term.
Working capital analysis
Not all businesses have the same needs, since everything depends on the economic activity they carry out and their size. However, the analysis of the working capital follows the same principles and, in general, always offers a realistic view of the company's financial situation in the short term.
In this sense, there are some very useful indicators that you should know when analyzing the liquidity of your company.
The first is the FM ratio, which is calculated simply by dividing assets by current liabilities. If the result is between 1.5 and 2, you can say that you have sufficient working capital to meet any debt. Having more than 2 indicates that you have stagnant resources that can be invested, while having less than 1 indicates that the fund is negative and you have a liquidity problem or lack of working capital.