Maintaining the capital of a company is very essential for the company’s operational and financial success. By seeing the company growth, cash flow and profit it is decided how a business is able to manage their capital. Capital management is one of the metric for each company to run their business smoothly on daily bases. That’s why Mr.Gabe Plotkin has started advising the companies in managing the capital. Let us see why it is important to maintain the working capital.
- Having a cash flow is very important for any business to do their daily work like buying the raw materials which are needed to make the product, to pay their debts amount, to payee the employee salaries and to make the payments for the cost which has occurred unexpectedly. The unexpected cost might be buying some machines or repairs done on the machines etc.
- It helps the company in managing their regular operation work smoothly and also earns profits. They look after the inventory; account which need to be received and also the accounts which need to payee. That is the account receivable and account payable. It helps the company to reduce the usage of capital on daily basis and in turn increase the return from current investments.
- The need of each company may differ in managing the capital as each company. You can also find difference in the same type of companies too. This is because they might have different policies for collecting amounts, the time for product to be sale. For example few products are sold on daily bases and few as and when required by the customer. There might be few companies whose accounts receivable are due for long time and other company is up to the mark.
- The capital management companies uses there types of ration to help the company to maintain there assets and also gain in their profit. These ratios are current ration, collection ratio and inventory ratio. Each has its own significance in improving the company financial and operation system.
- This is very important for the smaller business as they pay their bills from the earnings as they do not have huge profits. And it also helps them in playing their debts because taking support from other financial companies will be more burdens on them and it is very difficult to get finances for small companies.
Hope the above mentioned details about will help you in running your company.