Question

How would you respond to this post?

Working capital is the difference between the current assets of a business and its current liabilities. A business should use working capital analysis to determine the liquidity of the current assets versus current liabilities. It should look at how to shift capital around to fund projects or make investments while keeping enough to satisfy the daily operations of the business. Lower interest rates incentivize borrowing to finance receivables and working capital needs. According to Biery, some businesses are using loans at lower interest rates to fund equipment purchases and facility expansions, build inventories and to acquire competing businesses. They are also using these low-interest loans to improve processes and productivity (Biery, 2013). Cash flow is the amount of cash flowing in and out of a business. It is important because cash coming in covers the cash going out for expenses. A positive cash flow indicates that there is enough cash to cover expenses, demonstrating financial stability, while a negative cash flow shows the opposite. A short-term lender would deem flow of cash more important because the business would require the availability of cash more quickly to pay loans than can be generated from the stock of cash, which would require selling stock to obtain cash in a more risky, volatile market due to fluctuating market conditions. It would be hard to imagine a business that could operate with no current liabilities. The only business that may not have current liabilities is perhaps a sole proprietorship that has just the owner with no employees, pays for everything in cash at the time of purchase, and has borrowed nothing. This would assume that there would be no payroll tax liabilities because the profit would flow to the personal tax return. It would also assume that there would be no accounts payable because everything was paid in cash at the time of purchase, even utilities. Therefore, while it could be possible, it is very hard to imagine any business that could operate this way.

Answer 1

Yes its hard to imagine ,because each and every businessman and mostly the sole proprietor are looking for the wholesalers who provides goods on credit ,so that the small business man may hold more than the required amount of cash to operate its business

But on the other hand if the sole proprietor is getting huge discounts in purchasing goods for resale purpose in cash and they are already having excess capital with them ,then they may purchase goods in cash and increase its profits margin .

If the business is new and soleproprietor is not having much capital in the form of cash then this case will probably be difficult to apply on these soleproprietor

But if the capital is largely available ,then the proprietor could operate in this way .