Sources of Working Capital

Created By - Abhishek B. Wadkar

Roll No. - 5714
M.Com - Part II (Semester 4)
Subject – Capital Market & Financial Services
 Working Capital
Concept and Definition
 Concept:
Working capital, also known as net working capital (NWC), is the difference between
a company’s current assets - such as cash, accounts receivable/customers’ unpaid bills, and
inventories of raw materials and finished goods—and its current liabilities, such as accounts
payable and debts.

 Definition:
In Financial Accounting, Working Capital is the difference between the Inflow and
Outflow of funds which is nothing but the Net Cash Inflow.
 •Financial Institution
Long •Issue of Debentures
Term •Public Deposit Shares
Financing •Short Term Credit
•Internal Sources
•Loans from Banks

Sources
Short
Term •Commercial Papers
Financing •Factoring
•Trade Bills
•Discounting

of Working
Spontane
ous
Creditors
Financing •Outstanding
Expenses
Capital
Long Term Financing

 Long term financing means financing by loan or borrowing for a term of more than one
year by way of issuing equity shares, by the form of debt financing, by long term loans,
leases or bonds and it is done for usually big projects financing and expansion of company
and such long term financing is generally of high amount.
 The fundamental principle of long term finances is to finance the strategic capital projects
of the company or to expand the business operations of the company.
 These funds are normally used for investing in projects that are going to generate synergies
for the company in the future years.
 Ex: – A 10-year mortgage or a 20-year lease.
Short Term Financing

 Short term financing means the financing of business from short term sources which are for
a period of less than one year and the same helps the company in generating cash for
working of the business and for operating expenses which is usually for a smaller amount
and it involves generating cash by online loans, lines of credit, invoice financing.

 Ex:
Spontaneous Financing

 In business, "spontaneous finance" refers to financing that arises out of regular, day-to-day
operations. Unlike with other common sources of financing, such as loans or bonds,
obtaining additional spontaneous financing doesn't require any special action by the
company; it just "happens," hence the name spontaneous.
 Spontaneous sources of financing include all those sources that are available upon demand
( eg. trade credit, accounts payable) or that arise naturally as a part of doing business.
 Ex: Salary of Employees, Wages, Sales Tax, etc.