What are they and how can you use them to your advantage?
Every business has three key financial tools at its disposal: working capital, equity, and profits. But what are they and how can you use them to your advantage? Read on to find out.
Working capital is the money that a business has available to meet its short-term obligations. It is calculated by subtracting a company's current liabilities from its current assets. While companies obviously need to have enough working capital to cover their immediate expenses, they also need to be careful not to tie up too much of their money in short-term assets like inventory or accounts receivable, as this could limit their ability to invest in long-term growth opportunities.
Equity is the value of a company's ownership interests. This can be calculated by subtracting a company's liabilities from its total assets. For example, if a company has $10 million in assets and $4 million in liabilities, it has $6 million in equity. Equity can be used to finance a variety of business activities, including expansion, acquisitions, and investments in new products or services.
Profits are the revenue that a business generates minus its expenses. This can be divided into two categories: operating profits and net profits. Operating profits are generated from a company's core business activities and do not include one-time items like restructuring charges or the sale of assets. Net profits include both operating profits and one-time items. Profits can be used to finance a variety of business activities, including expansion, acquisitions, research and development, and investments in new products or services.
Every business has three key financial tools at its disposal: working capital, equity, and profits. By understanding what each of these concepts is and how they can be used to your advantage, you'll be in a much better position to grow your business and achieve long-term success.