Optimization of the company's cash flow

Experience and observation prove that one cannot make no serious value judgment on the creditworthiness of a
company to the only consideration of its working capital.
1 - THE MEANING OF WORKING CAPITAL LIMITS FROM THE EXPERIENCE.
Nor the volume or composition, nor the meaning of the working capital fund variation indicate with certainty the
liquidity of the company.
1.1 - VOLUME OF THE WORKING CAPITAL FUND AND CASH.
While a well-balanced financial structure, i.e. representing a positive working capital fund, is usually an index of good
management, a presumption of difficulties arises from imbalance mixed with fixed assets greater than permanent
resources. In fact, the level of the Working Capital Fund largely depends on the way in which the assets is managed.
Very fleshed out, it can mean that assets are not sufficiently renewed and capital assets are excessive, reflecting an
underutilization of permanent capital. Conversely, the narrowness of the Working Capital Fund may sometimes
explained by the very particular nature of certain business activity. The amount of the Working Capital Fund is thus
determined by the characteristics of the cycle of exploitation and management which strongly influence the level of
the working capital needs. As a general rule, over the duration of the operating cycle is long, as these needs are high
and more fund bearing found in the balance sheet must be important.
A company with a high working capital is not necessarily an easy cash treasury if its working capital needs are most
important. Conversely, a company with a low, or even negative working capital, is not necessarily a tight cash
treasury.
1.2 - COMPOSITION OF THE WORKING CAPITAL FUND AND CASH.
The banker is concerned to the relative proportion of equity and terms of debts. The vulnerability of a company
grows with the importance of its debt. More the firm is indebted more abilities of additional debt are limited, ceteris
paribus. This is why calculating its own capital is recommended. The Working Capital Fund is equal to the difference
between equity and net fixed assets and indicates the degree of financial independence of the firm. But a positive
own Working Capital Fund may also imply that the firm is unable to finance its operating using only borrowed
resources cycle, and therefore has a more restricted room for maneuver to finance its investment cycle.
To finance its investments a company cannot and must not rely only on itself. It would judge favorably companies
that invest little and unfavorably dynamic companies. However, if the bankers more often advise the use of mediumterm
and long-term financing, they recommend in order to preserve the solvency of the company, a certain balance
in the Working Capital Fund.
A unanimously accepted empirical rule specifies that foreign long-term capital should not exceed balance sheet the
equity.
1.3 - CHANGES IN WORKING CAPITAL AND CASH.
One might be tempted to judge favorably a company whose capital increases and unfavorably the one that it
decreases. However, working capital of a company may drop without that the situation it deteriorates. This may
simply mean that the company has invested without external assistance through its bloated cash. Conversely, the
swelling of the Working Capital Fund may reflect the formation of idle cash. Therefore to analyze the underlying
factors of such movements to interpret wisely.
2 - THE LIMITS TO THE MEANING OF THE WORKING CAPITAL FUND IS DRAWN FROM STATISTICAL OBSERVATION.
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