is there a way to determine how much net working capital a company should have? i feel like we understand the amount it had in the past, but im not sure how to know if it’s optimal. kind of out of our scope i suppose but im curious

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In an ideal world as little as possible and increasingly less over time to improve cash flow from your BS.

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You would use benchmarks. The answer is always as low as possible is ideal, and that doesn’t stop at zero. That should be viewed in conjunction with profitability of course, plus assessment if vendors are not squeezed till it starts to disrupt operations (raw material suppliers who refuse to supply you). There are business models that by nature operate with a negative cash flow and are very healthy, like Amazon. But again… the best indicator is typically to look how you measure up to your peers who would have to deal with similar dynamics.

Yeah. I think I need to give it some thought.

I have a client with cash flow issues. profitable, but long cash conversion cycle

every time we inject more money, they use it for growth

meanwhile ar aging average is like 100 days and we have payment plans on all key critical suppliers.

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