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No.The cash flow position means a better business.It shows the overall position of business from different kinds of financial perspectives
Not at all. This is the indicator of financial perspective of the business. There are also non financial factor which also effect the business performance. Besides this improvement in working capital cycle must have to compare with similar business operations. Working capital cycle may vary from business to business based on nature and operations.
It does only mean u can handle ur short term liability effectively
Not in all cases but still it has a major contribution in overall growth of any business. Good management of working capital will generate cash and help improve profits and reduce risks.
If there is an improvement in your working capital cycle, that means you can get money to move faster around the cycle or reduce the amount of money tied up and the business will generate more cash or it will need to borrow less money to fund working capital. As a consequence, you could reduce the cost of bank interest or you'll have additional free money available to support additional sales growth or investment.
Similarly, if you can negotiate improved terms with suppliers e.g. get longer credit or an increased credit limit, you effectively create free finance to help fund future sales.
So, this definitely contributes to the betterment of any business substantially.
The shorter your working capital cycle, the faster you can convert inventory into cash and thereby lessening your dependency for cash on customer payments and loans.
Working capital management is essential for the long‐term success of a business. No business can survive if it cannot meet its day‐to‐day obligations.
But overall business success depends on KPI (key performance indicator). KPI is a business metric used to evaluate factors that are crucial to the success of an organization. Working Capital Cycle is only a part of Financial KPI. So we cannot tell improvement in “working capital cycle” means a better business in all cases.
Not in All cases, Working capital cannot be treated as an absolute figure, Componant analyses should be done, identify the changes.
For example when the cash increase it will show a better working capital whereas it might mean the inefficiency is utilizing the company resources and so on...
precisely my answer is NO.
I agree with the answer given by Vimal Jose Senior Accountant , Chartered Accountant.
