Download Working Capital Needs

Lesson 9
1.
2.
Amount of money available to finance the dayto-day operations.
Why does it become so important?



As an indicator of financial problems
Can maximize growth.
Can help minimize future financial shortcomings.
3.
Determining the amount of working capital
needs.


Current assets minus the current liabilities.
The more that assets are in the form of cash, the
lower the amount of “liquid” working capital
needed.
DEBT
CAPITAL
EQUITY
CAPITAL
1.
2.
3.
A rule of thumb is to have at least $1 of equity
capital for every $2 of assets.
The investors/owners must have control over
the corporation’s future.
Equity ownership should be held by the
current investors.
A. A common guideline for measuring this
working capital ratio is $2 of current assets for
each dollar of current liabilities. The need for
working capital will be affected by:
1.
2.
3.
Permanent inventory levels
Number of locations or branches
Type of business
“He who controls the capital controls the business.”
Consolidation
1.
•
•
Pooling to reduce costs
Influences efficiencies
Joint Ventures
2.
•
Between the business and other partners
Partner with firms with superior market
strength
3.
•
Gain access to markets rather than control the
markets
Value-Added Ag
Businesses are
attempting to meet the
challenge by:


Avoiding redundant
capital use.

Areas where this is
happening:
Sugar beet industry
 Corn processing
 Dairy industry
 Citrus industry

Primarily in the form of
limited liability
companies or
cooperative businesses.