What is venture Capital ?
Venture capital tells us about the company’s short term financial position. A strong figure in terms of working capital denotes that the firm is running smoothly and the practices adopted by the firm are moving in a positive direction. If the venture capital is below 1, this signifies that the company’s working capital is negative. Although if venture capital is more than two, this means the company is not investing in any excessive assets.
Why venture capital is Important for your Business?
Venture capital is a split image of the following:
Venture capital is the culmination of inventory, cash, accounts payable, accounts receivable and the marketable securities and other short term accounts. It represents several activities including debt management, management of the inventory, collection of their short term revenue and payments made. A substantial working capital is an indicator that a company clears its short term liabilities immediately. Hence financial analysts are insightful about where the venture capital of a company is standing.
A low working capital gives a negative image of the company, denoting that a company is becoming overleveraged and is finding it hard to maintain or improve sales. We at GROWMORE aim to stabilize our clientele’s working capital by providing them with immediate support and custom made solutions for them.
Inventory management is one of the ideal uses of venture capital. The more time inventory takes to clear, the more it adversely affects the working capital of the firm.
The sufficiency of a company in terms of its working or venture capital depends largely on which sector it functions in and the relationship they share between their clients.
Some other aspects to be taken into consideration are:
If a company has majority of the assets as cash, equivalents of cash and marketable securities; even a small amount of working capital would suffice. However, if the company has an inventory that is tedious in nature then a greater working capital is needed.
If the sales are consistent irrespective of the mode of payment being online transactions or credit cards when they are placing the orders, a low working capital is fine. On the other hand, if a firm has a payment policy where in the cash flows is after 60-90 days and the suppliers are paid between 30-45 days, then the company will require a larger sum of working capital.
A positive/approved line of credit and a zero borrowing policy allows a company to function smoothly with a low venture capital.
At times, companies are known for being traditionalist when it comes to their accounting policies. I.e. a company having a high credit balance in their doubtful accounts allowance, but they will clear their slow moving items from the inventory. Some companies might not release their doubtful accounts and will retain their slow moving items in their inventory.
How can we help ?
Our analyst will complete, what we call a working capital benchmarking exercise to analyze performance of the firm with respect to the competitors and identify areas where there is a scope of improvement. We perform a diagnostic review that gives us the ability to find better opportunities in terms of raising the working capital of a company.