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Understanding Working Capital Essentials

This document discusses the concept of working capital, which refers to the funds used in a business's day-to-day operations. It defines working capital as the total current assets of a business and explains its importance for cash flow, liquidity, expansion, and profitability. The document also outlines different types of working capital, including gross working capital, net working capital, permanent working capital, and variable working capital. It provides formulas for calculating working capital and lists factors that determine how much working capital a business requires.

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Ajay Kumar
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119 views10 pages

Understanding Working Capital Essentials

This document discusses the concept of working capital, which refers to the funds used in a business's day-to-day operations. It defines working capital as the total current assets of a business and explains its importance for cash flow, liquidity, expansion, and profitability. The document also outlines different types of working capital, including gross working capital, net working capital, permanent working capital, and variable working capital. It provides formulas for calculating working capital and lists factors that determine how much working capital a business requires.

Uploaded by

Ajay Kumar
Copyright
© Attribution Non-Commercial (BY-NC)
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
Download as PPTX, PDF, TXT or read online on Scribd

PRESENTED BY AJAY KUMAR.

WORKING CAPITAL

CONCEPT OF WORKING CAPITAL

CONCEPT OF WORKING CAPITAL OR CIRCULATING CAPITAL INDICATES CIRCULAR FLOW OF MONEY IS DAY-TO-DAY OR ROUTINE ACTIVITES OF BUSINESS. IN BROAD SENCE WORKING CAPITAL IS USED TO DENOTES THE TOTAL CURRENT ASSETS.

IMPORTANCE OF WORKING CAPITAL

IMPORATNCE OF WORKING CAPITAL Cash discount Liquidity and solvency Expansion facilitated Profitability increased.

TYPES OF WORKING CAPITAL

[Link] the basis of concept (a) gross working capital (b) Net working capital [Link] the basis of Requirement (a) permanent (b) Variable exp- seasonal

GROSS WORKING CAPITAL (GWC)

Gross working capital (GWC)


GWC refers to the firms total investment in current assets. Current assets are the assets which can be converted into cash within an accounting year (or operating cycle) and include cash, shortterm securities, debtors, (accounts receivable or book debts) bills receivable and stock (inventory).

NET WORKING CAPITAL (NWC)


Net working capital (NWC) NWC refers to the difference between current assets and current liabilities. Current liabilities (CL) are those claims of outsiders which are expected to mature for payment within an accounting year and include creditors (accounts payable), bills payable, and outstanding expenses.

PERMANENT AND VARIABLE WORKING CAPITAL


Permanent or fixed working capital A minimum level of current assets, which is continuously required by a firm to carry on its business operations, is referred to as permanent or fixed working capital. Fluctuating or variable working capital The extra working capital needed to support the changing production and sales activities of the firm is referred to as fluctuating or variable working capital.

DETERMINANTS OF WORKING CAPITAL


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Nature of business Market and demand Technology and manufacturing policy Credit policy Supplies credit Operating efficiency Inflation

CALCULATING WORKING CAPITAL


Working Capital is the easiest of all the balance sheet calculations. Here's the formula. Current Assets - Current Liabilities = Working Capital

THANK YOU

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