What are the Benefits of Working Capital in Business?

[Suba]

Working capital is the difference between current assets and current liabilities in a period, so in simpler words working capital is a source of funds available to finance business operational costs. Small working capital will mean that businesses will encounter various liquidity difficulties such as paying employee salaries, purchasing merchandise inventory, etc. Investors will quickly assess whether the company's financial condition is healthy or not by using a working capital indicator above 2 which is considered quite good or healthy.

 

[Suba]

T

For firms, working cash is essential because it makes daily operations run smoothly. Benefits include fulfilling immediate responsibilities, taking advantage of opportunities, and remaining adaptable to changes in the market. It functions as the company's lifeblood in terms of finances and keeps it operating smoothly.

The smooth operation of a business is very dependent on working capital, both for the short term and long term. Apart from the main benefit as business liquidity, working capital can also often be used as emergency funds, payment of debts that are due, etc.