Working Capital Managment
Management Of Working Capital
Introduction
Working Capital-Definition Working Capital is the cash needed to pay for the day to day operation of the business. Along with long term investments , business also needs funds for short-term purposes to finance current operations. Investment in short term assets like cash, inventories, debtors etc., is called ‘Short-term Funds’ or ‘Working Capital’. Hence, the management of Working Capital is very important for the smooth running of business.
Calcution of Working Capital
Working Capital of a company is the difference between the Current Assets and the Current Liabilities of the company.
Working capital=Current Assets-Current Liabilities
Current Assets: Assets of the business held in the form of cash(e.g cash at the bank) or that can be quickly turned into cash. Current Assests
Stocks Cash Debtors Investments
Current Liabilities: Money owed by a business organization which is to be paid within next 12 months Current Liabilities
Trade Creditors Dividends Taxation Short term loans
Circulating capital – working capital is also known as circulating capital or current capital.’ “The use of the term circulating capital instead of working capital indicates that its flow is circular in nature.”
Structure of Working Capital
The different elements or components of current assets and current liabilities constitute the structure of working capital which can be illustrated in the shape of a chart as follows:
Working Capital Cycle makes it clear that the amount of cash is obtained mainly from issue of shares, borrowing and operations. Cash funds are used to purchase fixed assets, raw materials and used to pay to
Introduction
Working Capital-Definition Working Capital is the cash needed to pay for the day to day operation of the business. Along with long term investments , business also needs funds for short-term purposes to finance current operations. Investment in short term assets like cash, inventories, debtors etc., is called ‘Short-term Funds’ or ‘Working Capital’. Hence, the management of Working Capital is very important for the smooth running of business.
Calcution of Working Capital
Working Capital of a company is the difference between the Current Assets and the Current Liabilities of the company.
Working capital=Current Assets-Current Liabilities
Current Assets: Assets of the business held in the form of cash(e.g cash at the bank) or that can be quickly turned into cash. Current Assests
Stocks Cash Debtors Investments
Current Liabilities: Money owed by a business organization which is to be paid within next 12 months Current Liabilities
Trade Creditors Dividends Taxation Short term loans
Circulating capital – working capital is also known as circulating capital or current capital.’ “The use of the term circulating capital instead of working capital indicates that its flow is circular in nature.”
Structure of Working Capital
The different elements or components of current assets and current liabilities constitute the structure of working capital which can be illustrated in the shape of a chart as follows:
Working Capital Cycle makes it clear that the amount of cash is obtained mainly from issue of shares, borrowing and operations. Cash funds are used to purchase fixed assets, raw materials and used to pay to