Fixed Capital and Working Capital
WORKING CAPITAL AND FIXED CAPITAL AND ITS ADVANTAGES
Introduction:
A firm requires funds to acquire two types of assets : fixed assets and current assets .Fixed assets include land biulding , plant, and machinary , vehicles , equipment etc.These assets relatively permanent in nature and are necessary for carrying on the bussiness .Current assets ,on the other hand ,are kept for supporting day-to-day operations and keep changing during the course of the business.They liquidated within short period of time during the operating cycles of the industry and not normally exceeding one year. Current assets include cash , debtors, inventory of raw materials and finished goods , etc.Current assets constitute gross working capital.Working capital is the life blood and nerve centre of a business. Just as circulation of blood is essential in the human body for maintaining life, working capital is very essential to maintain the smooth running of a business. No business can run successfully with out an adequate amount of working capital.
Meaning of working capital:
Working capital refers to that part of firm’s capital which is required for financing short term or current assets such as cash, marketable securities, debtors, and inventories. In other words working capital is the amount of funds necessary to cover the cost of operating the enterprise.Working capital means the funds (i.e.; capital) available and used for day to day operations (i.e.; working) of an enterprise. It consists broadly of that portion of assets of a business which are used in or related to its current operations. It refers to funds which are used during an accounting period to generate a current income of a type which is consistent with major purpose of a firm existence.
Objectives of working capital:
Every business needs some amount of working capital. It is needed for following purposes,for the purchase of raw materials, components and spares.To pay wages and salaries.To incur day to day
Introduction:
A firm requires funds to acquire two types of assets : fixed assets and current assets .Fixed assets include land biulding , plant, and machinary , vehicles , equipment etc.These assets relatively permanent in nature and are necessary for carrying on the bussiness .Current assets ,on the other hand ,are kept for supporting day-to-day operations and keep changing during the course of the business.They liquidated within short period of time during the operating cycles of the industry and not normally exceeding one year. Current assets include cash , debtors, inventory of raw materials and finished goods , etc.Current assets constitute gross working capital.Working capital is the life blood and nerve centre of a business. Just as circulation of blood is essential in the human body for maintaining life, working capital is very essential to maintain the smooth running of a business. No business can run successfully with out an adequate amount of working capital.
Meaning of working capital:
Working capital refers to that part of firm’s capital which is required for financing short term or current assets such as cash, marketable securities, debtors, and inventories. In other words working capital is the amount of funds necessary to cover the cost of operating the enterprise.Working capital means the funds (i.e.; capital) available and used for day to day operations (i.e.; working) of an enterprise. It consists broadly of that portion of assets of a business which are used in or related to its current operations. It refers to funds which are used during an accounting period to generate a current income of a type which is consistent with major purpose of a firm existence.
Objectives of working capital:
Every business needs some amount of working capital. It is needed for following purposes,for the purchase of raw materials, components and spares.To pay wages and salaries.To incur day to day
Bibliography: CORPORATE FINANCE-THEORY AND PRACTICE BY VISHWANATH S.R. CORPORATE FINANCE BY DR. VARMA AND AGARWAL CORPORATE FINANCE PRINCIPLES AND PROBLEMS BY S. C KUCHAL FINANCIAL ACCOUNTING AND MANAGERIEL PERSPECTIVE BY R. NARAYANASWAMY