the stock of cash or the flow of cash?

Working capital analysis enables businesses to understand their liquidity position and make informed decisions about how to deploy their resources. It helps identify any potential shortfalls in cash that may hinder operations or lead to a financial crisis. The stock of cash refers to the total amount of liquid assets on hand at any given time while the flow of cash is more focused on measuring incoming and outgoing payments. Both are important for lenders as they provide insight into a company’s ability to repay its debts.

For short-term lenders, it is essential that businesses have enough liquid assets in reserve as this will ensure that all outstanding obligations can be met without relying too much on external financing. Additionally, having an adequate flow of cash is also important since this indicates whether current liabilities are being managed properly which reflects positively on the borrower’s creditworthiness.

Overall, working capital analysis provides invaluable information for both borrowers and lenders when making financial decisions. While both the stock and flow of cash play an important role, it is ultimately up to individual organizations to determine which areas require more attention so that they can adequately prepare themselves for different scenarios.