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SW KS, near Dodge City | But w1891 somewhat hit on it... I bet that guy that was telling you about not ever having any cash available actually had a LOT of working capital... He just didn't have cash.
Net worth is important, but net worth doesn't pay bills. That's what gets lost in a lot of this. Funny thing about it is if guys like cornstalk go in to borrow money, I would be willing to bet that they take his 3 years of taxes, look at the fact that his AGI + Depr + Interest very likely equals a number well north of 300K+/year (I'd put the over/under on it at 500K) and it's a slam dunk for everyone involved.
Profitability drives everything. In a longer term downtrend like we've been in, guess what happens? Balance sheet trends start looking bad as more payments on land and equipment get made out of built up working capital, but aren't replenished from profits. So the net worth looks pretty decent, hasn't gone down any, etc... but working capital keeps shrinking. What's that tell us? It very likely tells us that cash outflows are exceeding cash inflows. Going down that road for very long isn't much fun for anyone involved.
That's the true importance of working capital. Not that it's $XXXX or X% of debt or X times this ratio or that ratio or whatever.
Edit... Spelling.
Edited by pknoeber 1/4/2016 13:10
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Pknoeber and other bankers- working capital from down below
