Question

How is working capital important to the healthcare organization of today? Why is it different in health care as opposed to other industries?

Answer 1

Working capital is a common measure of a company's liquidity, efficiency, and overall health. Working Capital management is more important in health care industries than any other industry.

Importance

1. Strength The Solvency of the Organization – It helps the business to function smoothly and ease of payments of current liabilities.
2. Ease in Obtaining Loans – It is easier to obtain loans from banks and financial institution.
3. Enhances Goodwill – Goodwill is enhanced because all the liabilities are paid on time.
4. To maintain a balance between profitability and liquidity – So that excess funds do not lie idle and impact profitability or there is shortage of funds impacting liquidity.

Working Capital Cycle is generally smaller for a Healthcare Organization than other industries. The Credit period allowed to debtors is generally smaller than other industries. They face a lesser risk of bad debts than other industries. They generally never face shortage of cash. They have surplus cash which has to be managed very efficiently to generate equivalent returns. They generally have a positive working capital.