what do you mean by working capital? Types of working capital finance?& key features of working capital in India?
Net Working Capital (NWC) Permanent / Fixed Working Capital Temporary / Variable WC Seasonal Working Capital Special Working Capital FEATURES of Working Capital
Gross Working Capital (GWC) Net Working Capital (NWC) Permanent / Fixed Working Capital Temporary / Variable WC Seasonal Working Capital Special Working Capital FEATURES of Working Capital Needs that are Short Term: Working capital is being utilized in acquiring current assets which will be converted to cash for a short period only.
Business organization require adequate capital to establish business and operate their activities. The total capital of a business can be classified as fixed capital and working capital. Fixed capital is required for the purchase of fixed assets like building, land, machinery, furniture etc. Fixed capital is invested for long period, therefore it is known as long-term capital.Similarly, the capital, which is needed for investing in current assets, is called working capital. The capital which is needed for the regular operation of business is called working capital. Working capital is also called circulating capital or revolving capital or short-term capital. Working capital is used for regular business activities like for the purchase of raw materials, for the payment of wages, payment of rent and of other expenses. Working capital is kept in the form of cash, debtors, raw materials inventory, stock of finished goods, bills receivable etc. Concept Of Working Capital Generally, there are two concepts of working capital i.e. gross concept and net concept. 1.Gross Concept Of Working Capital According to gross concept, working capital refers to all the current assets and represents the amount of funds invested in current assets. Thus, gross working capital is the capital invested in current assets. Current assets are those assets which can be converted into cash within the short-time period. Gross Working Capital = Total current assets In this way, gross working capital refers to the firm's investment in current assets. Gross working capital represents total of current assets which includes cash in hand, cash at bank, inventory, prepaid expenses, bills receivable etc. 2.Net Concept Of Working Capital According to the net concept, working capital is the excess of current assets over current liabilities. In other words, the difference between current assets and current liabilities is called net working capital. Net Working Capital = Current Assets - Current liabilities In this way, net working capital is the difference of current assets and current liabilities.
**WORKING CAPITAL** Working capital is money available to a company for day-to-day operations. The formula for working capital is: Current Assets - Current Liabilities Working capital is a common measure of a company's liquidity, efficiency, and overall health. Because it includes cash, inventory, accounts receivable, accounts payable, the portion of debt due within one year, and other short-term accounts, a company's working capital reflects the results of a host of company activities, including inventory management, debt management, revenue collection, and payments to suppliers. TYPES OF WORKING CAPITAL FINANCE Gross Working Capital (GWC) Net Working Capital (NWC) Permanent / Fixed Working Capital Temporary / Variable WC Seasonal Working Capital Special Working Capital FEATURES of Working Capital Needs that are Short Term: Working capital is being utilized in acquiring current assets which will be converted to cash for a short period only. Circular Movement: Working capital is being converted to cash constantly which will just be turned as a working capital all over again. Permanency: Although it is just a kind of short term capital, working capital is needed by a business forever and always. Fluctuation: Working still fluctuates every now and then even it is something permanent. Liquidity: It is very liquid for it can be converted as cash any time without losing anything. Less Risky: Investments in current assets such as working capital comes with less risk for it is just for short term. No Need for Special Accounting System: Since working capital is a short term asset that will last for a year only, there will be no need for adoption of a special accounting system. Thanks
Hi Working capital is a measure of both a company's efficiency and its short-term financial health. The working capital is calculated as. **Working Capital = Current Assets - Current Liabilities** The working capital ratio (Current Assets/Current Liabilities) indicates whether a company has enough short term assets to cover its short term debt. Anything below 1 indicates negative W/C (working capital). While anything over 2 means that the company is not investing excess assets. Most believe that a ratio between 1.2 and 2.0 is sufficient.Also known as "net working capital".