Financing Arrangements

A measure of both a company’s efficiency and its short-term financial health.

The working capital ratio is calculated as:

Positive working capital means that the company is able to pay off its short-term liabilities. Negative working capital means that a company currently is unable to meet its short-term liabilities with its current assets (cash, accounts receivable and inventory).

Also known as “net working capital”. If a company’s current assets do not exceed its current liabilities, then it may run into trouble paying back creditors in the short term. The worst-case scenario is bankruptcy. A declining working capital ratio over a longer time period could also be a red flag that warrants further analysis. For example, it could be that the company’s sales volumes are decreasing and, as a result, its accounts receivables number continues to get smaller and smaller.

Working capital also gives investors an idea of the company’s underlying operational efficiency. Money that is tied up in inventory or money that customers still owe to the company cannot be used to pay off any of the company’s obligations. So, if a company is not operating in the most efficient manner (slow collection), it will show up as an increase in the working capital. This can be seen by comparing the working capital from one period to another; slow collection may signal an underlying problem in the company’s operations.

During the life of a company there are many times the business may grow at a pace faster than the ability of the cash flow can meet the growth momentum. It may be necessary to review the business plan and prepare justification for funds to expand the capitalization of the company. This can be done by either conventional bank debt financing or private equity funding. Short and long term debt financing can work well when the plan is properly laid out for payback. Private equity can be used in a variety of ways. Fund growth through acquisition of another entity or restructure by taking on a minority or controlling interest equity partner thereby freeing up some liquidity for succession planning purposes. In consultation with your legal and financial professionals you should determine which method is best for the long term objectives of the business and estate planning.

A type of private equity capital typically provided by professional outside investors, to new high-potential-growth companies in the interest of taking the company to an IPO. Venture capital investments are generally made as cash in exchange for shares in the invested company. A venture capitalist (VC) is a person who makes such investments. A venture capital fund is a pooled investment vehicle (often an LLC or LP) that primarily invests the financial capital of third-party investors in enterprises that are too risky for the standard capital markets or bank loans. Venture capital can also include managerial and technical expertise. Most venture capital comes from a group of wealthy investors, investment banks and other financial institutions that pool such investments or partnerships. This form of raising capital is popular among new companies, or ventures, with limited operating history, who cannot raise funds through a debt issue. The downside for entrepreneurs is that venture capitalists usually get a say in company decisions, in addition to a portion of the equity.

Leveraging assets that otherwise may be inaccessible to accomplishing business acquisition objective is employed through sophisticated tax legal methods. AWBE collaborates with experts in this specialty field to bring the best results in acquiring a business. Tax codes apply to all companies and individuals at both ends of the financial spectrum. Find out how to make your wealth work for you.

Our Professionals are trained to examine Balance Sheets for determining if there are any under valued assets. We employ our expertise on behalf of the company to provide insights in dealing with overlooked assets.