Critical Components of Working Capital - Special Academic Support

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The agency dilemma is, first of all, based on the conflict of interests between two groups. However, it is critical to emphasize that this association is not equally beneficial to both sides because one is usually expected to act in anothers best interests. Therefore, to ensure that every side of this relationship is satisfied, one of them should have the upper hand in the matter, which can easily be a privilege of access. If one party is not capable of operating more effectively than the other and agrees to accept anothers assistance, it can solve an agency dilemma.

At first glance, capital seems to consist only of two components: assets and liabilities, but it is actually more complicated to assess the profitability of any business. Cash (or cash equivalents) is the companys main resource that allows it to expand, develop, and transition to new strategies (Alvarez et al., 2021). However, it is common to forget about the money that is owed to the company and is not yet paid, but it still is a capitals integral part. Alvarez et al. (2021) also claim that if the company sells various goods, its inventory should also be considered in the working capital. Lastly, any due payments like tax, dividends, and debts affect the companys capital and should be taken into account.

Having researched the article, it is easy to recognize many mistakes that new businesses make while calculating their work capital and assessing immediate financial profits. It seems that considering every possible spending, investment, or payment is of utmost importance to understand the companys revenue. Therefore, learning how the finances should be operated within the company is nothing but critical to achieving long-term success.

Reference

Alvarez, T., Sensini, L., & Vazquez, M. (2021). Working capital management and profitability: Evidence from an emergent economy. International Journal of Advances in Management and Economics, 11(1), 32-39.

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