Finance Essay Example | Topics and Well Written Essays - 1000 words - 11

Finance - Essay ExampleA business could not fall in and operate without workings slap-up finance. Another purpose of working capital is addressing seasonal or alternate(prenominal) financing take. Here, working capital finance supports the build-up of short-term assets needed to generate revenue, but which come beforehand the receipt of capital. Adequate and appropriate working capital financing ensures that a firm has sufficient cash flow to pay its bills as it awaits the full collection of revenue. When working capital is not sufficiently or appropriately financed, a firm can run out of cash and face bankruptcy. Working capital is also needed to sustain a firms growth. As a business grows, it needs larger investments in inventory, accounts receivable, personnel, and other items to realize increased sales. Lastly, working capital is used to undertake activities to cleanse business operations and re main competitive, such as product development, ongoing product and process im provements, and cultivating freshly markets.The components of working capital usually comprise all the components of Current Assets (Petroff, June 1, 2001). However, that is not always so in the nature of the working capital cycle. Some modifications to working capital may involve the exclusion of rough components of current assets. The diagram below illustrates a simple working capital cycle of an organization.There atomic number 18 two elements in the business cycle that absorb cash - Inventory (stocks and work-in-progress) and Receivables (debtors owing money to the organization). The main sources of cash are Payables (your creditors) and Equity and Loans. Each component of working capital (namely inventory, receivables and payables) has two dimensions (1) Time and (2) Money. When it comes to managing working capital, time is as valuable as money. If an organization can get money to move express around the cycle (e.g. collect monies due from debtors more quickly) or reduce th e amount of money tied(p) up (e.g.