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Working Capital Questions

What is working capital?

Working capital is a gauge of the efficiency of a company and its short-term financial health. The ratio for working capital is Working Capital = Current Assets – Current Liabilities. If a company has positive working capital then the company has the ability to pay its short-term liabilities. A negative working capital means a company cannot meet its short-term liabilities with the current assets on hand. Uncertainties of what working capital is or what working capital policies can help reduce costs often lead to questions like the ones answered below by Experts.

CanI loan money to my partnership as working capital from another C-Corporation I own or does it have to be from my personal assets? 

Case Details: I own both the C-corporation and the partnership. The loan be for 5 months at 5% APR. The C-Corporation is in the same industry as the partnership.

The C-corporation and your partnership firm that you own are separate entities from each other. You are able to loan the working capital from either source you prefer, from the c-corporation or from your personal assets. If you were to loan the working capital from your C-corp then it will be listed as a creditor with your partnership firm and as a debtor in your C-corp’s books. Additional the firm will be liable to the corporation. However, if you loan the working capital from your personal assets then the firm will be liable to you.

If a firm wanted to reduce their financing costs, which working capital financing policy would they follow?

A firm that is looking to reduce their financing costs should implement a variety of policies including but not limited to; cash management, inventory management, debtors management, and short-term financing. The combinations of policies are aimed at the management of the current assets and short-term financing so as making returns and cash flow acceptable.

Why is working capital management important to financial managers?

Working capital is a gauge that represents operating liquidity available to a business. It is the blood line of a business. Well running working capital can assist in raising credit standings of a business. There aren’t any businesses that can run effectively without a good amount and management of working capital. It is the job of the finance manager to decide the amount of correct working capital. The overall success of a business depends on its working capital management.

What type of loan is the best option if someone's financial statements and tax returns are not great, and credit score is only average?

If you have already tried the traditional route to obtain a loan for working capital and were denied; you can look to hard money lenders. Hard money lenders generally will loan money that is secured by real estate. With any loan less than perfect credit may costs you more in interest or up front points.

Cultivating a good understanding and obtaining the right information on working capital can help when dealing with questions about working capital. Experts can help answer what working capital is or what working capital policies can help reduce costs. Get the answers fast and affordably by asking an Expert.

Ask a Financial Professional

Rakhi Vasavada
Rakhi Vasavada, Financial and Legal Consultant
Category: General
Satisfied Customers: 2163
Experience:  Graduated in law with Emphasis on Finance and have have been working in financial sector for over 12 Years
43581946
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Financial Professionals are online & ready to help you now

Rakhi Vasavada
Financial and Legal Consultant
Satisfied Customers: 2073
Graduated in law with Emphasis on Finance and have have been working in financial sector for over 12 Years
Manal Elkhoshkhany
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Satisfied Customers: 1890
More than 5000 online tutoring sessions.
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Satisfied Customers: 1755
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Recent Working Capital Questions

  • I need help deciding if I can afford to move. My son owes

    I need help deciding if I can afford to move. My son owes me $200,000. I own my condo outright. It would appraise for $220.000. My son wants to get me a mortgage and that way I could invest the money from my condo. He is 28 and I am 61. He got a really great job in California and is in a high tax bracket. He needs the tax deduction but doesn't want to buy real estate in California at this time. His salary is $265,000. plus stock and bonuses.
    His credit rating is in the 700's and mine is not great in the 600's because of short sale in 2012 and my ex-husband's bad credit. What I want is to get into another condo in my building that has two bedrooms and windows and a balcony. I only have three windows and no balcony and though I have 1500 sq ft, it doesn't technically have a second bedroom because it doesn't have a window, so that space is called a den.
    I have two sources of income from two investments: one is a small company that I own 20% of and I make about $30,000. a year and I have some oil wells-three that I expect to make about $7000 to $9000 on over the next few years,(when oil goes back up, it will increase), I have an annuity that I can cash out or roll over into monthly payments starting next November. At that time, it will be worth about $70,000. I can cash it out and invest it or keep it. I have been unable to work because of health problems, but I expect to work again in two years and bring in maybe $15,000. a year. The condo, unit 604, I want is $270,000. I was wondering if it would work to keep the condo I have, unit 1310, and get a mortgage for $100,000. for downpayment on 604. I would invest what is left after downpayment. I would then use 1310 as a rental because there is high demand in this building. I would make about $12,000 a year after HOA fees and property taxes. I would invest what I don't use on downpayment. In exchange, for my son helping me, I would put both properties in his name. I do not have any other money, except that I do expect that my income from the company I own part of will pay me more money, possibly a lot more in the near future. There are no guarantees, though.
    Thank you for helping me! I desperately want to move out of this condo. The rental market in this area and building is very good, so I know I can rent, but my son wants me to stay in this unit and use the mortgage to invest and make me more financially secure. I want to stay in this location because I am going to school a block away and other reasons.
    The condo I want is really a buy, as well, one of the better units in the building.
  • I am going to take out 23,800 out of my IRA. I am 73 years

    I am going to take out 23,800 out of my IRA. I am 73 years old and want to know how much money to set aside for taxes for that amount? I also need to know how much will be taken out for the State of MN for $23,800 and approximately $40,000.
  • My nephew wants to buy a car. Currently he lives with me, attends

    My nephew wants to buy a car. Currently he lives with me, attends a nearby college and has a descent job 35 hrs/week. He's been paying a token $300/mo for room and board. We're reviewing an app for a car loan, and I'm wondering whether the rent should be included on the application because I don't want it to lower his loan amount. I'd rather not charge him rent. He has no other expenses. He brings in about $2K month
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