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Working Capital | Know Importance, Benefits & Eligibility - MYND Fintech

Working Capital is the difference between a companyu2019s current assets and its current liabilities. It is an indicator of a businessu2019s liquidity and short-term financial health and its ability to utilise its assets efficiently.<br>https://myndfin.com/working-capital/

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Working Capital | Know Importance, Benefits & Eligibility - MYND Fintech

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  1. Working Capital | Know Importance, Benefits & Eligibility -MYND Fintech

  2. Businesses Rely On Working Capital To Maintain Their Solvency.

  3. WHAT IS WORKING CAPITAL? Working capital is also known as net working capital and is defined as the difference between a company’s current assets and its current liabilities. The working capital of a business indicates its liquidity and short-term financial health and its ability to utilise its assets efficiently.

  4. IMPORTANCE OF WORKING CAPITAL MANAGEMENT: When a company’s current assets exceed its current liabilities, it is considered to have positive working capital. This indicates that the company is in a strong financial position and has adequate liquidity. Having this positive factor helps the company maintain solvency. The following factors highlight the importance of working capital: • • • • • Managing liquidity Avoiding out-of-cash position Helps decision-making Adds value to the business Earn short-term profits

  5. THE BENEFITS OF WORKING CAPITAL FOR ANY BUSINESS: Having adequate working capital provides numerous benefits. First, it helps ensure that a business will continue operating without interruption by ensuring that the company has sufficient cash to meet its short-term obligations—the purchase of supplies and raw materials and payment of any wages. Paying for these expenses is non-negotiable for a business; thus, having enough capital is crucial to maintaining the reputation and goodwill of your company. In order to buy in bulk and qualify for discounts, you need sufficient capital. Buying in bulk also allows you to scale up quickly if sales increase suddenly. The alternative is leaving money on the table and losing valuable opportunities. Sometimes, the best solution for small businesses facing a cash crunch is short-term working capital loans.

  6. ELIGIBILITY CRITERIA – WORKING CAPITAL LOANS To be eligible for getting working capital loans, the following are the eligibility criteria: 1. The applicant must be between 24 to 70 years of age. The applicant must not be over 70 years at the time of maturity of the loan. 2. The business must have an operational history of more than 3 years. 3. In the case of last year annual turnover being more than 1 crore, the financial statements must be audited by a CA. 4. A good credit rating makes it easy to get a loan and helps get a good deal.

  7. DISADVANTAGES OF DEPENDENCE ON WORKING CAPITAL: While working capital is an essential tool to maintain the liquidity of a business, there are some disadvantages in depending too much on it. 1. Takes into account only monetary factors: financial term that focuses on the monetary aspects of a business. It does not account for factors such as recession, employee satisfaction, or government regulations, which can affect a company's bottom line. Working capital management is a 2. Does not respond to sudden market changes: static in nature, because it is based on past data and events and does not respond quickly to sudden changes in market conditions. In today's dynamic business environments, delays in responding to specific events can affect business operations and profitability. Working capital management is

  8. Based on data solely: Working capital management is based on data. Data includes every minute detail of the working capital cycle. For example, in accounts receivable, it would require the date of sale, the credit period, grace period and penalty in case of delay or nonpayment. Without data, this strategy doesn't work. Any error or change in this data may disrupt the entire cycle. 3. The problem in interpretation: Working capital management is a complex process that uses numbers, ratios and interpretations of those ratios to calculate the feasibility of a business's financial decisions. For instance, experts believe that in the case of current assets, a ratio of 1:1 is ideal. At the same time, ratios higher than 2:1 are considered unfavorable. If a business has a longer trade receivables cycle than the industry's average, it will not be able to interpret the ratio accurately. 4.

  9. THANK YOU To Know More Visit: Myndfin.com Call: +91-124-4646000 Email: hello@myndfin.com

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