What is working capital and why is it important to a company?

Discussion Question
Name
Institution
1. What is working capital and why is it important to a company?
Working Capital is a measure of liquidity of a company and hence a measure of its future credit-worthiness. A company that wants to make a borrowing through purchasing commercial paper or bonds may find it more expensive in the event that it does not have enough working capital. In the case of a public company, the stock prices are likely to fall when the market looses faith in the adequacy of the company’s working capital. For start-up and small business which are unable to access borrowings in financial markets, working capital tend to have more dire implications. Working capital can also be looked at as the amount of money start-up or small business need in order to stay in operations (Agrawal, 2008). Start-ups companies have to pay attention to their working capital as it is the money needed to keep the business of such companies running until the break-even point. Too much capital on the other hand implies that some of the company’s assets have not been invested for the long-term, meaning that they have not been properly utilized to help the company grow.
2. What are the various depreciation methods and how do they compare/contrast?
One of the depreciation methods is the straight-line method that allocates an equal depreciable base amount to every year of the service life assets. It is the most widely used and easily understood depreciation method. The depreciable base is normally divided by the number of years in the life of assets to come up with the annual depreciation. The other depreciation approach is the accelerated method. While in the straight line approach, it is implicitly assumed that the benefits from the use of assets remain the same every year, in some cases, it is more appropriate to match depreciation with revenues having a depreciation declining pattern, with higher depreciation in the early years of the l...