Boeing is feeling the love at Le Bourget as it announced dozens of orders for new commercial passenger aircraft during the Paris Air Show.

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In a business it can be defined as its current assets less its current liabilities. Current assets comprise cash, stocks of raw materials, work in progress & finished goods, marketable securities such as Treasury bills & amounts receivable from from debtors. Current liabilities comprise creditors falling due within one year, & may include amounts owned to trade creditors, taxation payable, dividend payments due, short term loans, long term debts maturing within one year & so on.

Every business needs adequate liquid resources to maintain day to day cash flow. It needs enough to pay wages & salaries as they fall due & enough to pay creditors if it is to keep its workforce & ensure its supplies. Maintaining adequate working working capital is not just important in the short term. Sufficient liquidity must be maintained in order to ensure the survival of the business in the long term as well. Even a profitable company may fail if it does not have adequate cash flow to meet its liabilities as they fall due.

What is Working Capital Management?

Ensure that sufficient liquid resources are maintained is a matter of capital management. This involves achieving a balance between the requirement to minimize the risk of insolvency and the requirement to maximize the return on assets .An excessively conservative approach resulting in high levels of cash holding will harm profits because the opportunity to make a return on the assets tide up as cash will have been missed.

The volume of Current Assets Required.

The volume of current assets required will depend on the nature of the company business.

For example, a manufacturing company may require more stocks than company in a service industry. As the volume of output by a company increases, the volume of current assets required will also increase.

Even assuming efficient stock holdings, debt collection procedures & cash management, there is still a certain degree of choice in the total volume of current assets required to meet output requirement. Policies of low stock-holding levels, tight credit & minimum cash holding may be contrasted with policies of high stock (To allow for safety or buffer stocks) easier credit & sizable cash holding (For precautionary reasons).

Over-Capitalization

If there are excessive stocks debtors & cash & very few creditors there will an over investment by the company in current assets. It will be excessive & the company will be in this respect over-capitalized. The return on the investment will be lower than it should be, & long term funds will be unnecessarily tide up when they could be invested elsewhere to earn profits.

Over capitalization with respect to working capital should not exist if there is good management but the warning since excessive working capital is poor accounting ratios. The ratios which can assist in judging whether the investment in working capital is reasonable include the following.

• Sales /working capital. The volume of sales as a multiple of the working capital investment should indicate weather, in comparison with previous year or with similar companies, the total value of working capital is too high.

• Liquidity ratios. A current ratio in excess of 2:1 or a quick ratio in excess of 1:1 may indicate over-investment in working capital.

• Turnover periods. Excessive turnover periods for stocks & debtors, or a short period of credit taken from supplies, might indicate that the volume of stocks of debtors is unnecessarily high or the volume of creditors too low.

http://professional-edu.blogspot.com/2008/11/5working-capital-management.html

In due course of a lease program you actually realize how restaurant equipment financing is beneficial. There are a lot of merits from this type of funding.

• The way a lease program works for restaurant equipment financing is beneficial to the operational revenue of the business. They offer soft loans for a longer duration unlike banks which lend you a limited sum and often burden you with stringent rules and deadlines. In case of leasing, you have smaller installments to pay off every month. The extra money that is generated from the business can be used to run the restaurant in a better fashion. It could also be channeled into the working capital of the business. This will ensure a solid financial ground to build your business on.

• Another reason why companies adopt the policy of leasing is due to the lack of cross collateralization. This is one of their merits as opposed to regular bank loans. Banks insist on filing all types of collateral and therefore most of the assets of the establishments are tied down with bank lien. This means that your assets and new equipment will actually serve the interests of the bank because it will be attached with the bank.

• Many proprietors of the restaurant business feel that their equipment may suddenly break down. Or worst still it might be outdated by the end of the tenure of the loan. Leasing removes all these problems as an advancement in terms of the technology can always be applied for at the end of the lease term. On an optimistic note, the assets will not even depreciate or decrease in value as most machines are prone to.

• Another merit of leasing is that the payment terms are often not rigid. There are often set monthly installments. The interest rates are also not variable with market conditions as there are fixed interest rates. This equips you with all the tools for sound financial planning.

• The restaurant business is such that there are high risks of the business not making operational profits. There are numerous examples of start-ups not breaking even. In that case the proprietors are forced to settle their debts and clear their loans so that they do not face charges of financial scam. Restaurant financing leasing helps remove all these hurdles.

Restaurant equipment financing offers a fresh breath of air in the already competitive restaurant business. It helps the owners to make operational profits from the very start so that they are not saddled with losses. It is the gourmet cuisine of the restaurant business.

Loans are also given by the financial institutions to procure and manage an existing restaurant. The course of action for these loans is the same as the restaurant business.

You should look before you leap into the loans because it is going to decide the financial health of your company. Restaurant equipment financing needs a specialized approach. Therefore it would make sense to approach the right kind of organization with vast expertise on refreshments equipment financing.

Chris Fletcher’s page features more about new and used Restaurant Equipment financing and other finance topics.