Effective Practices on Working Capital Management of Food Cart Franchise in Manila

Firms hold cash in order to satisfy the cash inflow and outflow that they have. Upholding this idea will certainly give a flourishing business the brawn to operate continuously. Cash flow, the lifeblood of any business is an arduous but vital factor any businessman should keep an eye on and it is imperative to understand the inflows and outflows accordingly. It is the most important indicator of the business financial health, a well manage flow of cash indicate a healthy business, while poorly manage cash flow can cause problems that affect the entire business. Understanding a company’s cash flow health is essential in making decisions. A good way to judge a company’s cash flow prospect is to look at its working capital management.

Working capital is an accounting term for what is left over when current liabilities are subtracted from current assets. Practically, it is the money in the bank that can be used to pay the running cost and expenses, and buy inventory while waiting to get paid by business customers. Taking stock of a business working capital makes sure business can meet its financial needs. Positive working capital means that the company is able to pay off its short term liabilities. Negative working capital means that a company current is unable to meet its short term liabilities with its current assets. If a company's current assets do not exceed its current liabilities, then it may run into trouble paying back creditors in short term and the worst case scenario is bankruptcy. A declining working capital ratio over a longer time period could also be a red flag that warrants further analysis. Working capital management ensures a company has sufficient cash flows in order t o meet its short term debt, obligations and operating expenses. It focuses on maintaining efficient levels of both components of working capital; current assets and current liabilities. Implementing an effective working capital management system is an excellent way for many...