What is Adequate Working Capital?
– Adequate working capital for business varies, often extremely, from a small business to a large business, from an under-capitalized company to a well-capitalized company, from a growing business to a business declining in size or sales, certainly from a start-up company to a mature company, and it varies from one day to the next. What might be adequate is quite different between times when excess cash needs to be invested and times when the business owner has no idea how to fund tomorrow’s payroll. Working capital improvement measurements and ratios also have severe limitations in working capital management. They are snapshots of one moment in time and can vary greatly moment to moment. The assumed liquidity of assets is often misrepresented on company balance sheets, as the historical cost of assets often varies greatly from their market values. Some liabilities and, especially, assets might not be recorded at all (e.g., contingencies and goodwill). Companies involved in start-up an
