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How does working capital impact a company’s ability to grow sustainably?
Asked on Oct 22, 2025
Answer
Working capital is crucial for a company's sustainable growth as it represents the funds available to meet short-term obligations and invest in day-to-day operations. Efficient management of working capital ensures that a company can maintain liquidity, support operational needs, and invest in growth opportunities without over-relying on external financing.
Example Concept: Working capital is the difference between a company's current assets and current liabilities. It impacts a company's ability to grow sustainably by ensuring that it has enough liquidity to cover short-term expenses and invest in necessary operational activities. Proper management of working capital helps maintain a balance between profitability and liquidity, enabling the company to seize growth opportunities while minimizing financial risks.
Additional Comment:
- Working capital management involves optimizing inventory levels, accounts receivable, and accounts payable.
- A positive working capital indicates that a company can fund its current operations and invest in future growth.
- Excessive working capital might suggest inefficiencies, while too little can lead to liquidity issues.
- Regular monitoring of working capital ratios helps in making informed financial decisions.
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