Working capital is the money and assets that business uses to finance the day today operations that produce the goods or services supplied to customers´.The capital required for running the day to day business activities of a firm isknown as ³Working Capital´. It refers to that part of total capital employedwhich has been invested for financing of current assets and payment of day today expenses.E.g.- Inventories, Debtors, Bill receivable etc.³Working Capital is the amount of fund necessary to cover the cost of operatingthe enterprises.´
Working Capital Gap = Current Assets - Current LiabilitiesWorking capital has two concepts:-a)
ross concept: -
ross working capital usually referred to as working capitalrepresent investment in current assets. The gross concept of working capitalfocuses the attention on two aspects of current management.These are:i) Optimum investment in current assets.ii) Financing of current assets.This mean the level of investment in current assets should be adequate.
et concept: -
et working capital is difference between current assets andcurrent liabilities. The net concept of working capital is an accountingconcept that deals with management of net value of current assets in longrun.
et concept of working capitali) Indicates liquidity position of the firm.ii) Suggests the extent to which working capital needs may be financed by permanent source of funds.