For example, a logistics business or an airline needs a transport fleet to operate. For example, traditional train set manufacturers have struggled in the new age of digital toys and games. For example, many established businesses, such as Tesco and Iceland, are re-inventing themselves with internet strategies. There is no greater test than how a management team performed when its backs were up against the wall. Financial risk assessment should determine the ability of the company to maintain adequate working capital, maintain productive assets, satisfy debt servicing commitments, pay reasonable dividends and maintain some borrowing power.
Most companies require a core level of working capital to maintain operating capacity.
Such working capital is determined the typical time lag between cash inflows and cash outflows. For example, the demand for luxury holidays tends to drop away in a recession but demand for caravan site holidays tends to remain fairly constant because of people trading up or down. These may have been positive or negative. Factors such as sales, profitability and cash generation should be compared. In practice, questions are not limited to the above and are explored in much greater detail.