Title: How Working Capital Works
Headings: How Working Capital Works
How Working Capital Works
Key Takeaways
What Is Working Capital?
Not All Companies Are the Same
Evaluating Companies
The Bottom Line

Content: Software technology companies have low working capital needs because they do not sell any physical product, and therefore, have very little inventory expense. Companies like computer giant Dell recognized early that a good way to bolster shareholder value was to notch up working capital management. The company's world-class supply-chain management system ensured that DSO stayed low. Improvements in inventory turnover increased cash flow, all but eliminating liquidity risk, leaving Dell with more cash on the balance sheet to distribute to shareholders or fund growth plans. Dell's exceptional working capital management certainly exceeded those of the top executives who did not worry enough about the nitty-gritty of WCM. Some CEOs frequently see borrowing and raising equity as the only way to boost cash flow. Other times, when faced with a cash crunch, instead of setting straight inventory turnover levels and reducing DSO, these management teams pursue rampant cost cutting and restructuring that may later aggravate problems. The Bottom Line
Cash is king; especially at times when fundraising can be difficult. Letting it slip away is an oversight that investors should not forgive.