Working Capital Definition
As you say, if you delay paying your bills, your liabilities will increase. Like say your bills total $10,000 per month. If you normally pay after 30 days, then your short-term liabilities will be $10,000. If you stretch that out to pay after 60 days, then you will be carrying two months worth of bills as a short-term liability, or $20,000. Your liabilities go up. Assume you keep the same amount of cash on hand after you stretch out your payments like this as you did before. Now your liabilities are higher but your assets are the same, so your working capital goes down. For example, suppose you kept $25,000 in the bank before this change and you still keep $30,000 after. Then before your working capital was $25,000 minus $10,000, or $15,000. After it is $25,000 minus $20,000, or only $5,000. So how does this relate to cash flow? While presumably if the company has $10,000 per month in bills, and their bank balance remains at $25,000 month after month, then they must have $10,000 per month in income that's going to pay those bills, or the bank balance would be going down. So now if they DON'T pay that $10,000 in bills this month, but the bank account doesn't go up by $10,000, then they must have spent the $10,000 on something else. That is, they have converted that money from an on-going balance into cash flow. Note that this is a one-time trick. If you stretch out your payment time from 30 days to 60 days, then you are now carrying 2 months worth of bills on your books instead of 1. So the first month that you do this -- if you did it all at once for all your bills -- you would just not pay any bills that month. But then you would have to resume paying the bills the next month. It's not like you're adding $10,000 to your cash flow every month. You're adding $10,000 to your cash flow the month that you make the change. Then you return to equilibrium. To increase your cash flow every month this way, you would have to continually increase the time it takes you to pay your bills: 30 days this month, 45 days the next, 60 the next, then 75, 90, etc. Pretty soon your bills are 20 years past due and no one wants to do business with you any more. Normally people see an action like this as an emergency measure to get over a short-term cash crunch. Adopting it as a long-term policy seems very short-sighted to me, creating a long-term relationship problem with your suppliers in exchange for a one-shot gain. But then, I'm not a big corporate finance officer.
Market Capitalization is the equity value of a company. It measures the total value of the shares available for trade in public markets if they were immediately sold at the last traded market price. Some people think it is a measure of a company's net worth, but it can be a misleading for a number of reasons. Share price will be biased toward recent earnings and the Earnings Per Share (EPS) metric. The most recent market price only reflects the lowest price one market participant is willing to sell for and the highest price another market participant is willing to buy for, though in a liquid market it does generally reflect the current consensus. In an imperfect market (for example with a large institutional purchase or sale) prices can diverge widely from the consensus price and when multiplied by outstanding shares, can show a very distorted market capitalization. It is also a misleading number when comparing two companies' market capitalization because while some companies raise the money they need by selling shares on the markets, others might prefer debt financing from private lenders or sell bonds on the market, or some other capital structure. Some companies sell preferred shares or non-voting shares along with the traditional shares that exist. All of these factors have to be considered when valuing a company. Large-cap companies tend to have lower but more stable growth than small cap companies which are still expanding into new markets because of their smaller size. Just to clarify things: The Net Working Capital is the funds, the capital that will finance the everyday, the short term, operations of a company like buying raw materials, paying wages erc. So, Net Working Capital doesn't have a negative impact. And you should not see the liabilities as beneficial per se. It's rather the fact that with smaller capital to finance the short term operations the company is able to make this EBIT. You can see it as the efficiency of the company, the smaller the net working capital the more efficient the company is (given the EBIT). I hope you find it helpful, it's my first amswer here. Edit: why do you say the net working capital has a negative impact? Buying capital assets doesn't immediatley reduce a company's profits. They can get allowances for it but the assets are written down over a number of years   Edit: two comments below mine were deleted which fairly called me out for amazon's high capital investment policy to which I reaponded:  Fine I've had a few drinks. All I meant was capital doesn't directly reduce profits in most instances. Large investments like amazon would. You are right. But for Joe bloggs limited it doesn't. I had in mind the accountant the movie where one line Affleck says confuses capital and revenue and it stuck with me that a lot of people thought this. Didn't mean to have a go. I think this is a bit of fallacy. Capital is not a fix thing. If there is value to be realized, business can find the money. The issue really is that the job is hard and the company views it as a cost, not an investment. Companies in their earliest stages will likely not have profits but do have the potential for profits.  Thus, there can be those that choose to invest in companies that require capital to stay in business that have the potential to make money. Venture Capital would be the concept here that goes along with John Bensin's points that would be useful background material.  For years, Amazon.com lost money particularly for its first 6 years though it has survived and taken off at times. Based on the definitions I found on Investopedia, it depends on whether or not it is going against an asset or a liability.  I am not sure what type of accounting you are performing, but I know in my personal day-to-day dealings credits are money coming into my account and debits are money going out of my account. Definition: Credit, Definition: Debit "Doing fine != creating more jobs  edit:4 million in the past two years isn't really enough to say that we are making any real progress on the millions out of work. Also wages are declining as they seek to cut costs which is a major problem as well. They way you define ""fine"" is very relative." While true, I don't have capital.  The VC does.  And while whatever my product is is in development, I'm haemorrhaging that capital on things like food and rent.  If I want to make more, my startup is put on hold while I find some paid work.    The dollar signs are an incentive for the VC to help make your business a success. Living wage applies to the location that the job is in. Warehouse in Northern KY? Living wage for northern KY. Warehouse in NYC? Living wage for NYC. Those numbers will be very different.   As for a definition of a living wage, that varies. One definition is that it's the minimum income that allows a worker to meet their basic needs (food, housing, transportation, healthcare, etc), presumably without needing to rely on a social net. If you need for food stamps or housing assistance to meet your basic needs for food and shelter, you probably aren't making a living wage. Variance of a single asset is defined as follows: σ2 = Σi(Xi - μ)2 where Xi's represent all the possible final market values of your asset and μ represents the mean of all such market values.  The portfolio's variance is defined as σp2 = Σiwi2σi2 where, σp is the portfolio's variance, and wi stands for the weight of the ith asset.  Now, if you include the borrowing in your portfolio, that would classify as technically shorting at the borrowing rate. Thus, this weight would (by the virtue of being negative) increase all other weights. Moreover, the variance of this is likely to be zero (assuming fixed borrowing rates). Thus, weights of risky assets rise and the investor's portfolio's variance will go up. Also see, CML at wikipedia. Put simply:    Financial Services provides or facilitates access to capital in some capacity, and are companies unto themselves (TD Ameritrade, Goldman Sachs, Bank of America, etc), this also includes accounting companies which provide financial information, and insurance companies that deal with risk.  Corporate Finance is part of all businesses in any industry (So for example Starbucks has a finance department, and those employees are doing corporate finance), and plans how to use capital to fund a company's projects and make sure there is sufficient cash on hand as it's needed for daily operations.  Corporate Finance interacts with Financial Services to access the capital needed to fund the business's activities. In view of business, we have to book the entries. Business view, owner and business are different. When capital is invested in business by owner, in future business has to repay it.  That's why, capital always credit. When we come about  bank (business prospective) - cash, bank, fd are like assets which can help in the business. Bank is current asset (Real account) - Debit (what comes into the business)                                        Credit (what goes out of the business) Hence credit and debit differs from what type of account is it.... credit - when business liables debit - what business has and receivables You need to look at where the profits are coming from. In this case, compressed wage growth and extreme cost-cutting. I mean shit, Dimon ripped out all of JPMs Bloomberg terminals. Work happiness at banks are much lower and people are leaving, save for at certain types of banks. The profits are just coming from employees. Overtime is a lot lower to non-existent in right to work states and you'll pull 10-30 hours over what you signed on for on a weekly basis.   If you're not aware of what capital requirements are then I really can't dive into this. I suggest you read up on Basel 3, the US system, liquidity cover ratio (LCR) and then understand generally what products yield more and the risks attached to those.   If you do know those then I feel like you know where my response is going, but I'm happy to get into it more. Means A has a much higher level of interest payments dye to either higher debt or higher cost of debt (or combination of both). MM theory suggests higher debt in a capital structure due to the tax shield but you need to consider if A's debt level is appropriate or too high and what that says about your company. Also, cash doesn't necessarily mean cash in the bank, like you or I would think of. It means cash-convertible (usually bonds) that can be sold or turned into cash within three months period (but usually can be done within a few weeks).  But like you said, they are probably making more money by keeping it in their current investments. Plus, interest rates are at the lowest they will ever be, and GE is practically borrowing money for free.   Quite smart, actually.