Concept of Working Capital

Working capital

Gross working capital

Net working Capital

Permanent Working capital

Temporary working Capital

Investment Decision

Fixed Asset

Current Asset

Current Assets include:

Stocks of raw materials, Work-in-progress, Finished good, Trade debtors, Prepayments, Cash balances, marketable securities, one year fixed deposits with bank etc.

Current Liabilities include:

Trade creditors, bank overdraft , one year borrowings, Taxation payable, Dividends payable, Short term loans etc

Meaning and Definition of Working Capital Working capital refers to short term funds to meet the operating expenses. It refers to the funds which the company must possess to finance day to day expenses.

Gross working Capital The firms investment in all the current asset taken together. The sum total of investments in all the individual current asset are termed as GROSS WORKING CAPITAL. Ex. Cash balance 100000, debtors150000, inventory of raw material and finished goods 120000 Hence Gross working capital of the firm is 370000.

Temporary Working Capital

The amount of current assets that varies with seasonal requirements.

AMOUNT in Rs.

Temporary current assets

Permanent current assets

TIME

Permanent Working Capital

The amount of current assets required to meet a firms long-term minimum needs.

AMOUNT in Rs.

Permanent current assets

TIME

Net working capital Is defined as total of current asset over total current Liabilities. Current liabilities are those claims which are outsiders. Ex. Current Asset 370000 and current Liabilities 170000. then NET WORKING CPITAL = 200000. This may be positive or negative.