Daily Archives: May 31, 2018

Investors take on Working Capital of the Business

Investors are constantly looking at how well the business can be run with a keen eye on the cash conversion cycle of the enterprise where they have a financial interest in.

Their comprehensive view of the balance sheet has 3 main metrics: the assets performance, the manner in which the structure of Capital is assembled and the adequate working capital of the business. The efficiency in managing the above financial standpoints, it is important for the business to run its operational cycle smoothly.

Investors View

As they say, Revenue is Vanity, profit for Sanity and Cash is the reality which perpetuates the fact on how well the conversion of cash equivalents’ are done in the business during the short span of time necessitated for funding the short-term requirements in the enterprise. Investors look in the:

  • a good analysis of the healthy working capital ratios which are mostly the improvement of the cash flow cycle in the business including how well the conversion period is
  • accelerating the cash inflows in the business which takes on the customer’s purchase decision, credit decisions, payment terms, the collection period and improvising the debt collection, payment, and deposit of funds
  • the credit policy and checking where and how the policy works effectively in the business along with the Credit insurance
  • the forecasting of the cash inflows, the collection period, the sales ratio including the aging schedule, projected outgoings from the business, combined together to understand the incoming and outgoing projections together gives a good cash flow movement understanding
  • the surplus and shortage forecasting and asset sales will determine the projection of how well the cash inflow and outflow is happening in the business however large or small it is
  • Study of the ratio’s in financial terms gives the overall picture of how the company accounts are used to understand and bring out the quick view of the operating cycle of the business.

As investors judge on how well the short-term assets are managed in the business to generate the funds, to inject in the business expansion or special projects the liquidity should be determined in the correct way without having to circle around the numbers for long, as cash is King, it works on like the sixth sense for the business, without which all the five senses are in vain. Managing the collections of the business with priority on the collection method employed and the terms help the overall process of managing the business efficiently.