Working capital is the word used to describe the money that a business utilizes to cover its short-term obligations and finance its daily operations. Working capital is determined in accounting by deducting a company’s current liabilities from its current assets. The time it takes for a business to turn its inventory into cash is referred to as the operational cycle or the 10th working capital.
A company’s operating cycle is a key factor in determining its financial health since it affects how quickly it can produce cash and pay its expenses. Inventory, the fourth necessity of production, is essential to the operational cycle. Companies must keep enough inventory on hand to meet customer demand while avoiding having too much inventory, which can lock up capital and hurt profitability.
Companies must take into account consumer excess in addition to inventory when determining their prices. Consumer surplus is the gap between what consumers are willing to pay and what they actually pay for a product. Businesses that can charge more for their products than consumers are willing to pay can keep a portion of this surplus as profit.
Consumer equilibrium refers to the state in which a consumer is getting the most value or satisfaction from a product. The consumer is currently paying the price they are willing to pay, and the business is taking the largest possible portion of the surplus generated by consumers. In this case, both the customer and the business benefit.
The cost of airline tickets is an illustration of equilibrium. Airlines calculate their pricing using complex algorithms that take into account variables including demand, competition, and seasonality. Equilibrium is reached when a customer purchases a ticket at a price they are willing to pay and the airline is collecting the greatest amount of consumer surplus.
In conclusion, the operational cycle of the company’s 10th working capital is crucial to its financial stability. In order to satisfy customer demand, businesses must keep the right amount of inventory on hand while avoiding excess inventory that could hurt their profitability. In order to maximize profits, businesses must take consumer excess into account when determining prices. The consumer and the business benefit when a company can reach equilibrium.