Essay about Working Capital

2 . 5 Working Capital

This section includes: Explanation and category of working capital Determinants of Working Capital Measurements of Seed money Working Capital Funding Management of Working Capital Products on hand management Funds Management Receivables Management LAUNCH: The term working capital is commonly employed for the capital necessary for day-to-day employed in a business concern, such as for choosing raw material, for meeting day-to-day costs on incomes, wages, rental prices rates, advertising and marketing etc . But there are very much disagreement amongst various economic authorities (Financiers, accountants, business men and economists) as to the exact meaning from the term working capital. DEFINITION AND CLASSIFICATION OF WORKING CAPITAL: Seed money refers to the circulating capital required to meet the day to day businesses of a organization firm. Working capital may be described by numerous authors as follows: 1 . 2 . 3. According to Weston & Brigham - " Working capital refers to a business investment in other words term assets, such as funds amounts receivables, inventories and so forth Working capital means current property. —Mead, Baker and Malott —J. S i9000. Mill " The amount of the current assets may be the working capital from the business”

Seed money is defined as " the excess of current assets over current liabilities and provisions”. But since per accounting terminology, it can be difference between the inflow and outflow of funds. Inside the Annual Survey of Industrial sectors (1961), working capital is described to include " Stocks of materials, powers, semi-finished merchandise including work-in-progress and finished goods and by-products; profit hand and bank as well as the algebraic quantity of sundry creditors as represented by simply (a) excellent factory obligations e. g. rent, salary, interest and dividend; b) purchase of services and goods; c) short-term loans and advances and sundry borrowers comprising quantities due to the factory on account of sale of goods and services and advances to tax payments”. The term " working capital” is often labeled " moving capital” which is frequently used to denote those property which are improved with comparative speed from one form to a new i. e., starting from funds, changing to raw materials, switching into work-in-progress and finished products, sale for finished products and ending with realization of cash from debtors. Working capital have been described as the " your life blood of any organization which is apt because it produces a cyclically going stream throughout the business”. Fianancial Management & international fund


Financial Management Decisions COST-VOLUME-PROFIT ANALYSIS

Working Capital may be classified in two ways a) Concept based working capital b) Time structured working capital

Seed money

Concept primarily based

Time centered

Gross Working Capital

Net Seed money

Negative Working Capital

Permanent or Fixed Seed money Seasonal Seed money

Temporary or Variable Seed money Special Seed money

Regular Seed money

Reserve Seed money

Concepts of working capital 1 ) Gross Working Capital: It refers to the firm's investment altogether current or circulating assets. 2 . Net Working Capital: The definition of " Net Working Capital” has been defined in two different ways: we. It is the excess of current property over current liabilities. This really is, as a matter of fact, one of the most commonly recognized definition. Some people define it as only the difference among current property and current liabilities. The former seems to be a much better definition as compared with the latter.

2. It is that portion of a firm's current assets which is financed simply by long-term cash. 3. Everlasting Working Capital: This refers to that minimum sum of expenditure in all current assets which can be required at all times to carry out minimal level of business activities. In other words, it represents the current resources required over a continuing basis over the complete year. Tandon Committee offers referred to this kind of working capital while...

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