Respond to… Every business requires working capital to function. According to Mueller (1953, as cited by Filbeck, Zhao & Knoll, 2017), “working capital is defined

Respond to… Every business requires working capital to function. According to Mueller (1953, as cited by Filbeck, Zhao & Knoll, 2017), “working capital is defined as the current assets used in generating revenues for the business through its operations after all current liabilities have been settled: (p. 266).  Ensuring there is a sufficient availability of working capital is essential to the continuing day-to-day operations.  A working capital analysis is a tool used to measure a firm’s liquidity and provide an assessment of its assets to liabilities to determine the company’s financial stability (Lapadusi & Caruntu, 2012).  Therefore, a business should use a working capital analysis to determine its borrowing capabilities and how much if any it should borrow to meet is short and long-term objectives and liabilities. When lending money, lenders measure a company’s probability of default, which is the possibility a company will have of being unable to pay its debt as one deciding factor when lending (Biery, 2013).  The lower the probability of default the more likely the bank will allow the business to borrow.  Therefore, short-term lenders are going to be more concerned with the amount of flow of cash versus stock of cash.  While stock of cash has value, however it is not as liquid as cash flow.  The greater the amount of positive cash flow the greater a firm’s liquid assets are and the higher the probability that the company will be able to pay back its debts. Anything is possible; however, it would not be the most business practical decision for a company to try to operate with no current liabilities.  Current liabilities are payables, such as taxes, wages, and account payables that we due within a year (Byrd, Hickman, K & McPherson, 2013).  The ability for a business to fully operate without any current liabilities would requires an enormous amount liquidity, cash and assets readily available and also substantial working capital to pay all its bills and still have the ability of funds to stay competitive.  Current liabilities can be compared to risk in that some is required in order to successfully operate and stay competitive. References: Biery, M.E. (2013, April 12). Businesses seeking working capital-survey. . Retrieved from Byrd, J., Hickman, K., & McPherson, M. (2013). [Electronic version]. Retrieved from Filbeck, G., Zhao, X., & Knoll, R. (2017). An Analysis of Working Capital Efficiency and Shareholder Return. , (1), 265–288. https://doi-org.proxy-library.ashford.edu/https://link.springer.com/journal/volumesAndIssues/11156 LĂPĂDUŞI MIHAELA LOREDANA, & CĂRUNTU CONSTANTIN. (2012). The Financial Stability Analysis through the Working Capital. , (4.I), 146. Retrieved from Respond to… Biery, M.E. (2013, April 12). Businesses seeking working capital-survey. . Retrieved from Wilkinson, J. (2013).  Working Capital Analysis. Retrieved from

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