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Working capital (WC) is an important metric for all businesses, regardless of their size.
WC is a signal of a company's operating liquidity .
Having enough WC means that the company should be able to pay for all of its short-term expenses and liabilities.
Large companies pay attention to WC for the same reason as small ones do: WC is a measure of liquidity, and thus is a measure of their future credit-worthiness.
Companies who want to borrow by issuing bonds or purchasing commercial paper (a market of large, short-term loans for big companies) will find it more expensive if they do not have enough WC.
If they are a public company, their stock price may fall if the market doesn't believe they have adequate WC.
For small businesses and start-ups, unable to access financial markets for borrowing, WC has more dire implications.
WC can also be described as the amount of money that a small business or start-up needs to stay in operation.
Start-ups need to pay attention to their WC because it is the amount of money they need to keep the business running until they break-even (start earning a net profit).
On one hand, WC is important to because it is a measure of a company's ability to pay off short-term expenses or debts.
On the other hand, too much working capital means that some assets are not being invested for the long-term, so they are not being put to good use in helping the company grow as much as possible.
WC is only one measure of a company's operating liquidity.
It is not the only measure, and it is certainly not a guarantee of a company's ability to pay.
A company may have positive WC, but not enough cash to pay an expense tomorrow.
Similarly, a company may have negative WC, but may be able to adjust some of their debt into long-term debt in order to reduce their current liabilities.
WC is an important metric, but is not the whole story of a company's financial health.
it is guaranteed to have enough cash to pay all of its expenses., the company is growing at the highest rate possible., All of these answers., and it will probably be able to obtain credit at a lower interest rate.
Source: Boundless. “Importance of Working Capital.” Boundless Finance. Boundless, 02 Jul. 2014. Retrieved 20 Mar. 2015 from https://www.boundless.com/finance/textbooks/boundless-finance-textbook/introduction-to-working-capital-17/working-capital-122/importance-of-working-capital-502-1473/