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Working Capital Two mark Questions: 1. Definition of Working Capital?

According to Genestenberg: Circulation capital means current assets of a company that are changed in the ordinary course of business from one to another. In the Words of Shubin: Working Capital is the amount of funds necessary to cover the cost of operating the enterprise. 2. Meaning of Working Capital? The capital of a business that is used in its day-to-day trading operations, calculated as the current assets minus the current liabilities. Working capital = current assets current liabilities

3. What is difference between fixed asset and current asset? Current assets are flexible in nature, easy to encashable and floating money to company whereas Fixed assets are Fixed in nature in other words non-moving assets, not easy to encash, regularly depreciated. Examples: Current assets: Cash - at hand and at bank Inventories Sundry Debtors Advance and Deposits Fixed Assets: Furniture and Fittings Tools and tackles Plant and Machinery Computer ( including assessories and UPS) Land and Building

4. Needs of Working Capital?

For the purchase of raw material, components and spares. To pay wages and salaries To incur day to day expenses and overhead costs such as fuel, power , office experience etc. To provide credit facilities to the customers.

5. Benefits of effective working capital management? Control of financial risk Opportunity for profit Strengthened balance sheet Increased customer, supplier, and shareholder confidence.

6. Concept of working capital? The effective planning, monitoring and management of liquid / near liquid resources including: i. Day-to-day cash control ii. Money at the bank iii. Receipts iv. Payments v. S-T investments and borrowings.

7. Meaning of Working capital cycle or operating cycle?


Accounts Receivables

Finished Goods Cash Purchase Production process Raw materials Working-in-process Production process 8. Nature of working capital: The amount tied up in working capital is equal to raw materials, work in progress, finished goods inventories, & accounts receivables less accounts payable. The net size of working capital affect the liquidity of an organization.

9. Determinants of working capital? Nature of Business Size of Business Manufacturing Process Seasonal Variations Working Capital Cycle Rate of Stock Turnover Firms Credit Policy Business Cycle. 10. Types of Working Capital? (i) On the basis Balance Sheet concept. (a) Stock working capital (b) Net working capital (ii) On the basis of Time. (a) Permanent working capital (b) Variable working capital