Professional Documents
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Capital
Management
Meaning of working capital
(WC)
Funds required for short term
purposes or day to day expenses
are working capital.
WC refers to part of firm’s capital
reqd. for financing short term or
current assets
also known as revolving or short
term capital or circulating capital.
Concepts of Working Capital
Balance sheet concept.
Two interpretations of W.C. under this concept
are:-
gross working capital:-
capital invested in total current assets of an
enterprise.
gross concept sometimes preferred over
networking concept due to:-
a). enables enterprise to provide correct amount
of WC at the right time.
b). every management is interested in total
current assets with which it has to operate
than the sources.
c). gross concepts takes into considerations that
every increase in the funds would increase the
working capital.
Importance of Net Working
Capital
It is a qualitative concept which
indicates firm’s ability to meet its
operating expenses and short term
liabilities.
It indicates the margin of protection
available to the short term creditors.
Indicator of financial soundness of an
enterprise.
Net WC is refered to as working
capital.
Operating cycle or circular flow
concept
Funds Working
Ratio Flow Capital
Analysis Analysis Budget
Ratio Analysis
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