For organizations to preserve financial stability and promote growth, working capital management must be done effectively. Understanding and maximizing working capital depend on closely observing key performance indicators (KPIs). Leading working capital fintech business Skyscend is aware of the value of KPIs in working capital management.
In this blog, we'll go into the specifics of key KPIs that companies should monitor to get a better understanding of the state of their working capital. By leveraging Skyscend's fintech solutions and understanding these KPIs, businesses can make informed decisions, address working capital challenges, and achieve long-term success.
A basic KPI for determining a company's ability to pay current obligations and short-term liquidity is the current ratio. It is computed by subtracting current obligations from current assets. If the ratio is more than 1, the company's assets are greater than its liabilities. A lower percentage may indicate the presence of liquidity issues and the requirement for better working capital management.
Days Sales Outstanding (DSO)
DSO estimates the typical time it takes for a company to receive money from its clients following a sale. It aids in assessing the effectiveness of receivables management. A high DSO suggests significant credit concerns and slower cash flow conversion. Businesses can increase cash flow by transforming unpaid invoices into immediate funds by employing working capital fintech solutions, such as invoice factoring.
Inventory turnover is a gauge of how rapidly a company sells and restocks its stock. It is computed by dividing the average inventory by the cost of goods sold. While a low ratio would signify excess inventory levels, which would tie up important working capital, a high turnover ratio suggests effective inventory management. Just-in-time (JIT) inventory management is one strategy that can be used to enhance inventory turnover and lower carrying costs.
Cash Conversion Cycle
The time it takes for a company to turn its investments in inventory and other resources back into cash is measured by the cash conversion cycle. It comprises the typical turnaround times for paying accounts payable, collecting accounts receivable, and converting inventories. A shorter cash conversion cycle is a sign of effective working capital management, which frees up funds for various uses for organizations'. By providing prompt payment for delinquent invoices, working capital solutions like factoring can assist shorten the cash conversion cycle.
Ratio of Working Capital to Sales
A business's working capital and sales revenue are compared using the working capital to sales ratio. It aids in evaluating how well working capital is used. A greater percentage shows that working capital is being used to generate sales more effectively. Businesses can acquire rapid funding to boost sales development without compromising their working capital by utilizing working capital fintech solutions like invoice factoring.
Fintech Solutions for Working Capital Management from Skyscend
Monitoring key performance indicators (KPIs) is vital for effective working capital management. Businesses may learn a lot about their financial health and spot areas for development by examining measures like current ratio, DSO, inventory turnover, cash conversion cycle, and working capital to sales ratio.
Skyscend provides cutting-edge finance solutions made to help businesses manage their working capital more effectively. Businesses can access working capital financing options, such factoring, through the Skyscend platform to take care of their short-term funding requirements. Real-time analytics solutions also give businesses the ability to track and assess KPIs, pinpoint areas for development, and make data-driven choices. Skyscend's expertise and technology provide businesses with the means to overcome working capital challenges and achieve financial stability.
Working capital fintech solutions, like invoice factoring, can be extremely important for improving working capital and resolving issues. Businesses can improve their working capital management and promote sustainable growth by concentrating on these KPIs and utilizing the relevant solutions.
Effective working capital management requires constant attention to key performance indicators (KPIs). With the help of Skyscend's fintech solutions and a thorough grasp of KPIs, businesses may improve working capital, solve problems, and promote sustainable growth. Businesses may realize their full potential and ensure a profitable future by utilising the power of working capital technology. Contact us to know more about fintech solutions.