A STUDY ON WORKING CAPITAL
working capital is of vital significance. It has been observed by Schall and Haley that“managing current assets requires more attention than managing plant and equipmentexpenditure mismanagement of current assets can be costly. Too large an investment incurrent assets means typing up capital that can be used productively else where on theother hand too little investment can be also be expensive”.
Meaning of working capital:
Capital required for a business can be classified two main categories viz., (i ) Fixed Capital and (ii) Working CapitalEvery business needs funds for two purposes for its establishment and to carry out itsday-to-day operations. Long-term funds are required to create production facilitiesthrough purchase of fixed assets such as plant and machinery, land, building, furniture,etc. Investments in theses assets represent that part of firm’s capital which is blocked on a permanent of fixed basis and is called fixed capital. Funds are also needed for short-term purposes for the purchase of raw materials, payment of wages and other day-to-dayexpenses etc. These funds are known as working capital. working capital refers to partof the firm’s capital which is required for financing short term or current assets such ascash, marketable securities, debtors and inventories. Funds, thus invested in current assetskeep revolving fast and are being constantly converted in to cash and this cash flows outagain in exchange for other current assets. Hence, it is also known as resolving or circulating capital or short-term capital.In the words of Shubin, “working capital is the amount of funds necessary to cover thecost of operating the enterprise”.According to Genesten berg, “circulating capital means current assets of a companythat are changed in the ordinary course of business from one from to another, as for example, from cash to inventories, inventories to receivables, receivables in to cash”.
Working capital definitions:
The following are the some of the definitions given for working capital by experts inthe area of financeJ.S.Mill: “The sum of the current assets is the working capital of a business”.