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Conclusion

Working capital is an important business metric because it measures your company’s ability to pay for its day-to-day operations. Managing your working capital, and understanding how much working capital you really need is essential as a business owner. Take steps to boost your company’s current assets and minimize liabilities to maintain strong working capital.

FAQ

What’s a good working capital ratio?
Good working capital ratios vary from business to business but ratios between 1.2 and 2 are usually considered comfortable.

For more info, check out our article on working capital ratios.

How can a business improve its working capital?
Businesses can improve their working capital in two main ways: increasing current assets and reducing current liabilities.

In short, the more money you can make from your operations and the less money you have to spend to keep things running, the better.

You can also improve working capital by operating more efficiently, such as by boosting inventory turnover.
What is the working capital cycle?
The working capital cycle measures how long it takes for your business to turn its net current assets into cash that you can use for other purposes. The shorter your working capital cycle, the better.

About the Author

TJ Porter

TJ Porter

Personal Finance Writer

I have in-depth experience in reviewing financial products such as savings accounts, credit cards, and brokerages, writing how-tos, and answering financial questions both simple and complicated.

More about me

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