Turn on the news and you’ll see companies everywhere trying to shore up their balance sheets in anticipation of weak sales and reduced access to credit. Adequate working capital is crucial in these tough times to stay in business.
My predecessor, Ren Garcia, has given us a nice portrayal of a business wimp as one without enough working capital. And Randy Meyers at CFO Magazine has warned that the temptation to extend payments is a sign of working capital trouble.
Here’s how to keep an eye on yours!
Working Capital and Related Ratios
Working capital is defined as the amount …read more

Credit Cards, so that they do not become a heavy burden (you can end up paying as much as 30% on interest & penalties), have to be managed just like any regular bank loan.
It is important to keep a proper mindset. Do not think of your credit cards as additional cash in your wallet. Thinking of your credit cards as available cash, you tend to purchase items that you want –rather than those which you really need. Or, if the purchases were for items you really needed, if you didn’t have the available cash in your …read more

Considering the case of an individual or household with no financial or physical Earning Assets, whose only Earning Assets are Manhours, where the Salaries or Professional Fees have related Direct Costs which do not leave sufficient Cash to meet Expenses:

What are the possible options for solving the financial problem?
The options start with your Manhours, your only Earning Asset.
1 If you are an individual, you can increase your Manhours: either by doing paid overtime (if your job allows it) or by taking on a second job. In a household, the increase in Manhours can be from …read more

Having spent posts 1 through 31 in understanding accounting talk, of what use is all this accounting talk?
At the end of the day, what accounting does is: it measures wealth and talks about how income creates wealth.
There is a world of difference between wealth and income. It is easy to confuse the two. And many think wealth and income are synonymous. Wealth is what is owned. Income is what is earned.
Wealth consists in assets. Income consists in cash inflows.
Consider a person who owns a huge mansion, an expensive car and designer clothes, but has …read more

In a majority of enterprises (whether large corporations or small businesses), the proceeds from Sales are usually received partially in Cash. The balance comes in the form of a promise to pay in the near future, usually within 30 to 90 days. This balance is booked as Accounts Receivable.

In a trading, merchandising or manufacturing firm, Sales come from goods being sold. This results in a decrease in Inventory. The decrease in Inventory is equal to the value of the goods or products when these were bought (for future sales, in the case of a trading or …read more