it could have consequences for order fulfillment


To get the answer to this question you first required to understand the concept of working capital cycle. The concept of the working capital cycle includes two of the main terms. The first one is that how soon the current asset of any company could be turned into cash. Current assets meaning inventory and account receivables within the organisation. The second one is how soon this cash could be used to pay the current liabilities.

To put things into perspective, a working capital ratio of current assets to liabilities higher than 1 means positive working capital. Similarly, negative working capital ratio is classified as any ratio below 1 which indicates short-term cash flow problems.

You need to take action to stabilize the situation right away because if working capital gets too low, it could have consequences for order fulfillment and affect the profitability of your business. On the other hand, a ratio above 2 might indicate that the business has too much inventory and is not invested in long-term growth.

Working capital loan

Businesses need to address the gap in working capital to stay afloat, either through their own reserve of profits or look for external financing. Working capital finance is approved after evaluating a company’s accounts and projected working capital requirements. An important aspect of working capital management is how frequently you pay your creditors and how quickly you can realize your debtors.


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