Running head: WORKING CAPITAL 1

Working Capital

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March 5, 2020
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Working Capital

The operational capital of an organization is stated as its working capital. The essential

elements of net working capital arepayables, inventory, receivables, and cash (Jonathan, 2010).It

is actually just a minor oversimplification. Current liabilitiesare all likely to be compensated. The

cash part of current assets is being recovered. Some receivables will not be obtained, and of

course, such products will not be transferred.Counterbalancing such losses is the idea that stock

priced over cost (and not substituted at the end of the life of the project) serves to raise working

capital. They help to counteract such impacts (Hofmann, Maucher, Piesker, & Richter, 2011).

For example: Let's take an example of this at the Retail store of Paula. Paula owns and

operates wear & accessories of a women shop with the following net liabilities&assets:

Cash: $10,000

Stock: $15,000

Accounts Receivable: $5,000

Accrued Expenditures: $2,500

Accounts Payable: $7,500

Other Trade Debt: $5,000

Paula would use a calculator of net working capital to calculate the measurement like this:

Net working capital = $30,000 - $15,000

= $15,000

As the current assets of Paula outweigh her current liabilities, her WC is positive. It

assumes Paula might use only current assets to pay each of her current liabilities. In the short

term, her shop is extremelyliquid and financially strong.She might use that additional

profitability to expand the branch or business out into new niches for clothing. When liabilities
WORKING CAPITAL 3

of Paula surpassed her savings, her WC would be negative, suggesting that her liquidity for the

short term is not as good as it might be.

References
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Hofmann, E., Maucher, D., Piesker, S., & Richter, P. (2011). Ways out of the working capital

trap: Empowering self-financing growth through modern supply management. Springer

Science & Business Media. Retrieved from https://books.google.co.in/books?

id=IaRnZxNLmY8C&pg=PA13&dq=net+working+capital&hl=en&sa=X&ved=0ahUKE

wjFj_P9rYLoAhVvzjgGHdZ7BDMQ6AEIOzAC#v=onepage&q=net%20working

%20capital&f=false

Jonathan, B. (2010). Financial Management. Pearson Education India. Retrieved from

https://books.google.co.in/books?

id=Et3czch2uJUC&pg=PA189&dq=net+working+capital&hl=en&sa=X&ved=0ahUKE

wjFj_P9rYLoAhVvzjgGHdZ7BDMQ6AEIRjAD#v=onepage&q=net%20working

%20capital&f=false