📝 What is Working Capital Analysis?

📝 What is Working Capital Analysis? Imagine you run a small bakery 🍰. Every day, you need flour, sugar, butter — and cash to pay for them! 💰 But you also wait for customers to pay you when they buy cakes. Sometimes they pay late! 😬 So the question is: 👉 Do you have enough money and stuff to run the bakery smoothly every day? This daily check is called Working Capital Analysis! 🔍 🔍 What is Working Capital? Working Capital = Current Assets – Current Liabilities ✔️ Current Assets = Things that can be turned into cash soon (within 1 year). Like: 👉 Cash 💵 👉 Stock of flour, sugar, butter 🥐 👉 Payments you will get from customers soon (Debtors) 📜 ✔️ Current Liabilities = Money you have to pay soon. Like: 👉 Bills to suppliers 💳 👉 Short-term loans 🏦 👉 Staff salaries 👨‍🍳 🎯 Why is Working Capital Important? ✔️ Helps you know if your business can survive the day-to-day game. 🎲 ✔️ Too little working capital = Trouble paying bills = Big risk 🚨 ✔️ Too much working capital = Maybe wasting money on too much stock = Less profit 💸 💡 Easy Example to Understand: Imagine you run an online store 🛍️ ✔️ Current Assets = ₹1,00,000 (cash, stock, customer payments) ✔️ Current Liabilities = ₹60,000 (bills, short-term loans) 👉 Working Capital = ₹1,00,000 – ₹60,000 = ₹40,000 🎉 You have ₹40,000 extra to run your daily operations safely! But... If liabilities were ₹90,000... then: 👉 Working Capital = ₹1,00,000 – ₹90,000 = ₹10,000 😨 (Very tight!) 🤔 What is Working Capital Analysis? It means checking: ✔️ Is your working capital positive (good!) or negative (dangerous!)? ❌ ✔️ Are you collecting money from customers fast enough? ⏳ ✔️ Are you paying suppliers on time without cash trouble? 💳 ✔️ Are you keeping the right amount of stock? Not too much, not too little? 📦 🚦 Signs of Healthy Working Capital: ✅ Cash always available for daily needs 💰 ✅ No delays in paying suppliers 🤝 ✅ Customers paying you on time 🕰️ ✅ Stock levels not too high (to avoid waste) 🎯 ⚠️ Warning Signs of Bad Working Capital: ❌ Always short of cash 💸 ❌ Delaying payments to suppliers 😬 ❌ Customers not paying you on time 😡 ❌ Too much unsold stock lying in storage 🏚️ 🎯 How to Improve Working Capital? ✔️ Collect money from customers faster 🏃‍♂️ ✔️ Delay supplier payments smartly (but not too late!) ⏳ ✔️ Reduce unwanted stock 🗑️ ✔️ Control daily expenses 🧾 🏆 Why Should Investors Care? ✅ A company with strong working capital = Runs smoothly = Less risk 🚀 ✅ A company with poor working capital = Always cash problems = Danger zone ⚠️ Even profitable companies can fail if they run out of cash for daily work! 😟 ✨ Final Thought: Working Capital is like fuel in a car 🚗 — without it, the business may stop suddenly! Smart investors always check working capital health before investing — to make sure the company can drive smoothly towards profits! 💰🎯