Question

what is the relashinship between working capital and company profatibility as whell as market value of the company ?

Answer 1

Working capital is the amount of liquid assets the company needs to run its day to day operations.

As such , these capital portion cannot be invested into high return areas as cash is required for company's functioning.

Too much Working capital is detrimental for company's profitability.

Proper management of working capital is key to a company's fundamental financial health and operating performance as a company. The ability to use working capital management to maintain a solid balance between growth , profitability and liquidity is a hallmark of good business management.

Effective control of working capital helps to ensure smooth operations and can also help to boost the company's revenues and profitability.

Working Capital involves maintaining the acceptable levels of current assets and current liabilities needed by the company. The management of short-term assets and liabilities requires close investigation as it plays an important role in assessing the profitability, risk and valuation of the company.

Market valuation

a company with efficient working capital management will have higher levels of profitability metrics, as such it will improve thevthe PE valuation report and help in improving the market valuation of the company.