Typically you want to see a company have a higher working capital number because that means the liabilities are not weighing the company down as much as it could. There are many avenues you can take this particular number and equations, so let us pick it apart and find what you may want to be looking for.
How important is ShiftPixy's Liquidity
ShiftPixy
financial leverage refers to using borrowed capital as a funding source to finance ShiftPixy ongoing operations. It is usually used to expand the firm's asset base and generate returns on borrowed capital. ShiftPixy financial leverage is typically calculated by taking the company's all interest-bearing debt and dividing it by total capital. So the higher the debt-to-capital ratio (i.e., financial leverage), the riskier the company. Financial leverage can amplify the potential profits to ShiftPixy's owners, but it also increases the potential losses and risk of financial distress, including bankruptcy, if the firm cannot cover its debt costs. The degree of ShiftPixy's financial leverage can be measured in several ways, including by ratios such as the debt-to-equity ratio (total debt / total equity), equity multiplier (total assets / total equity), or the debt ratio (total debt / total assets). Please check the
breakdown between ShiftPixy's total debt and its cash.
First are current assets and an asset is anything the company is using to generate revenue or house the business. Assets are the same across some industries, but typically they differ from company to company. A manufacturing firm will have different assets compared to a start up in Silicon Valley. When researching the assets, you want to know if they are in good working order and could potentially be liquidated in the event of a bankruptcy or financial distress.
Second are current liabilities and this encompasses the debt in a company, both long term and short term. If you look at debt, you want to understand why the debt is there in the first place. A reason could be the company is growing a needed the funds to purchase more assets and that is an acceptable answer. What you do not want is the company getting loans to pay off existing debt holders because that can signal a cash flow problem, which could ultimately bring down the business.
Bringing it all together, you want the working capital number to be as large as possible really, because that indicates there is little to no debt on the books and cash flow should not be an issue. However, it may be uncommon to find a business with no debt as many large companies have it for several of reasons. Be sure to fully understand the company’s intent and then move forward from there. If you get stuck, reach out to an investing and trading community as they can give you ideas on how to implement these numbers and gear it towards your current setup. If all else fails, reach out to an investing professional and they should be able to help you out. Working capital will be in almost all financial reports and should be in your toolbox.
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Nathan Young is a Senior Member of Macroaxis Editorial Board - US Equity Analysis. With years of experience in the financial sector, Nathan brings a diverse base of knowledge. Specifically, he has in-depth understanding of application of technical and fundamental analysis across different equity instruments. Utilizing SEC filings and technical indicators, Nathan provides a reputable analysis of companies trading in the United States.
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