Read the journal article, “Businesses Seeking Working Capital-Survey.” Based on the information presented in the article, discuss the following:* How should a business use working capital analysis?* Which is more important to the short-term lender: the stock of cash or the flow of cash?* Is it possible in today’s business to operate with no current liabilities? Respond to at least two of your classmates’ posts. Guided Response: Review several of your classmate’s postings. Respond to at least two of your classmates by sharing additional costs and benefits of a worldwide standard for financial reporting that they have not yet considered. Support your response with evidence from the text, real world examples, or external sources.————————1.Rebekah.Business Use of Working Capital Analysis Businesses use financial analysis to determine how they will fund operations. Working capital is the funds needed to cover the day-to-day functions, which when analyzed can be used to make decisions for the company (Biery, 2013). Working capital is important as often companies will need to wait for the funds for the accounts receivable and cannot halt operations until the funds are received. The working capital allows for grace in business to cover costs. Biery (2013) reported the financial survey results from banking professionals about what they believed to be the trends in capital funds. Over half of the surveyed participants noted that the current economic status makes it less likely that private companies will increase their capital expenditures (Biery, 2013). Working capital analysis can allow an organization to assess the expert view of future trends and if changes in the capital funds are needed.Short-term Lender Importance of Stock of Cash or Flow of Cash For a short-term lender, the flow of cash is more important than the stock of cash due to the value of liquidity. Liquidity ensures that cash flows easier, as the name denotes flowing akin to water, thus it allows for short-term lenders to see the money come back (Byrd, Hickman, & McPherson, 2013). Due to the low-interest rates, companies can use short-term lenders to fund working capital, which has shown an increase in profits and lowered credit risk (Biery, 2013). In other words, the cash flow from short-term lenders has improved business and the change in working capital allows for organizations to invest without low interest to get more cash flowing within the business. Cash flow trumps stock of cash as it has flexibility in use and funding.Operation with No Liabilities In my view, liability is unavoidable as companies have monetary obligations form either short- or long-term investments constantly. For instance, any service produced will have some lag time in the account receivable back to the company thus the organization is operating either with previously earned funds or with working capital that was loaned and would later need to be repaid. In short, most businesses at any point in time owe someone something, thus a liability is attached. As loans need collateral if one was to default on a loan the collateral is at risk. For instance, if one was to use their home as collateral to buy a car, if they default on the loan the car and home could be put at risk. In business, the same theories can apply of one borrowing funds to buy a new machine, once the revenue comes from the sales, then the loan for the machine can be paid, but in the interim, there is a liability to the company due to the loan being outstanding at a given point in time. Unless a company can function without debt, financial liability will be present.ReferenceBiery, M.E. (2013, April 12). Businesses seeking working capital—a survey. Forbes. Retrieved from http://www.forbes.com/sites/sageworks/2013/04/12/businesses-seeking-working-capital-survey/Byrd, J., Hickman, K., & McPherson, M. (2013). Managerial finance. Retrieved from https://content.ashford.edu/————————————————————————2.Shatera.Working Capital AnalysisEvery business is different and requires a different analysis of how working capital should be utilized for the benefit of the company. As Biery (2013) explained, some business owners will seek funding to float existing payments while they wait for receivables to come in while others look to obtain loans to grow their ability to take on more projects (para. 2). Whatever the reason prompting the decision to seek funding, the data shared should be evaluated against the company’s ability to pay off the funds borrowed as the negative implications that accompany poor decision making with regards to borrowing money can lead to financial ruin.Stock of Cash or Flow of CashThe article indicates some business leaders like the idea of saving the capital they have on hand and taking advantage of low interest rates to acquire monies needed to fund projects (Biery, 2013, para. 5). This process, in theory leaves funds available to pay existing obligations but the additional working capital is not free. In the example given in the article regarding money on hand to build a couple of houses versus securing money to build more, one would need to assess existing commitments on the right hand side of the balance sheet when considering how to fund projects on the left hand side. There must be enough working capital available to cover the increase on the right due to more interest payments while the homes are built, marketed and eventually sold to replenish the funds paid from stock of cash. Ultimately, the lender wants to ensure repayment obligations can be met without fear of default, especially in industries that are more volatile such as the housing market and construction projects. No Current LiabilitiesFor a company to operate with no liabilities could mean they may be missing out on opportunities to invest by having large amounts of money on hand for payables. Ideally, there should be a health balance between liquidity and funds tied up in receivables and payables. As Byrd, Hickman, and McPherson (2013) explained, a healthy company should be able to balance the amount of liabilities against their assets to prove financial soundness (Chapter 5.2). This equation does not intend for there to be no liabilities present for the company to be considered healthy. Biery, M.E. (2013, April 12). Businesses seeking working capital—survey. Forbes. Retrieved from http://www.forbes.com/sites/sageworks/2013/04/12/businesses-seeking-working-capital-survey/Byrd, J., Hickman, K., & McPherson, M. (2013). Managerial Finance [Electronic version]. Retrieved from https://content.ashford.edu/—————————————Required ResourcesTextByrd, J., Hickman, K., & McPherson, M. (2013). Managerial Finance [Electronic version]. Retrieved from https://content.ashford.edu/* Chapter 5: Estimating Cash Flows* Chapter 6: Capital Budgeting – Investing to Create ValueArticleBiery, M.E. (2013, April 12). Businesses seeking working capital—survey. Forbes. Retrieved from http://www.forbes.com/sites/sageworks/2013/04/12/businesses-seeking-working-capital-survey/Accessibility Statement does not exist.Privacy PolicyMultimediaWiley CMAexcel (2016, February 10). Free CMA exam lesson: Capital budgeting process. Retrieved from https://www.youtube.com/watch?v=h_ouhhkEaKgAccessibility StatementPrivacy PolicyINTELECOM. (Producer). Management of Working Capital Case Study: “George’s Trains”. [Video File]. Retrieved from the Intelecom Video Library.Accessibility Statement does not exist.Privacy Policy
