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Running head: MINIMIZING WORKING CAPITAL

Minimizing Working Capital
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MINIMIZING WORKING CAPITAL

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Minimizing working capital
Working capital is calculated by subtracting the current liabilities from the current
assets. In this case, it represents the liquidity of a company, the short-term financial health,
and the operating efficiency of an entity (Li, Dong, Chen & Yang, 2014). However, the
amount of working capital varies from one company to another. For instance, a company may
prefer to have a high liquidity level so as to sustain its operations, which is often typical of
industries such as mainstream retail and those with high operational costs. On the other hand,
an organization may prefer to have a lower working capital based on low day-to-day financial
needs as is the case with many service industries. However, there are various benefits and
limitations that arise from the minimization of the working capital. This paper will explore
these benefits and limitations, which will then help in evaluating whether or not a company
should consider minimizing its working capital.
Importance of minimizing working capital
Low working capital has a number of benefits to a company. Working capital
determines the number of assets that a company owns at any one time. It is often necessary
for companies to maintain optimum numbers of assets in order to optimize their revenue
generation and consequently raise their performance and net income. However, while more
asset...