In order to build and maintain working capital, companies have various sources. Net-income is the most important, and is commonly referred to as the profits a company makes from its operational activities. Other sources include long term loans which ease pressure on short-term obligations, selling assets, funds contributed by the owners and proceeds from sale of stocks.
In order to efficiently manage working company, one needs to access the financial statements and analyse the cash flow streams. If liabilities are greater than your assets, you need to work on ways to cut down on your costs. Ideally you must have more cash than you are paying for your products.
Essentially look at the selling patterns, or the supply chain element of the business. Efficient management will ensure that the company’s products are produced quickly, and distributed in a timely manner. That ensures that the final product is instantly within the reach of your customers, who then make timely payments, resulting in positive capital management.
The Days-Sales Outstanding is a perfect indicator for companies to gauge the length of the cash cycle. It basically tells you the time frame, in days, i.e. how long your cash has been tied up. This will be calculated by dividing the receivables with your total annual sales before multiplying the value with the number of days. A higher value is unsatisfactory as it will indicate that the company has a long time span when it comes to meeting its short-term obligations.