2. capital is the keynote of economic development. In
this modern age, the level of economic development is
determined by the proportion of capital available.
Capital (economics), A factor of production that
is not wanted for itself but for its ability to help in
producing other goods.
3. Working capital refers to the funds invested in Current
assets , sundry debtors, inventories , cash and bank balance
It is the fund required to support day to day operations
such as purchase of raw materials , payments of wages and
defraying other expenses for operations
Working capital = Current assets – Current liabilities
It measures how much in liquid assets a company has
available to build its business.
4. Positive working capital is required to ensure that a firm is
able to continue its operations and that it has sufficient
funds to satisfy both maturing short-term debt and
upcoming operational expenses.
The management of working capital involves managing
inventories, accounts receivable and payable and cash.
An increase in working capital indicates that the business
has either increased current assets (that is received cash, or
other current assets) or has decreased current liabilities,
5. Nature of Business
Size of business
Production policy
Operating efficiency
Credit policy
Dividend policy
Growth and expansion
Abnormal factor –strikes, lockout, inflation Etc
6.
7. Conversion of cash into raw materials.
Conversion of raw materials into work in
progress.
Conversion of work in progress into finished
stock.
Conversion of finished stock into accounts
receivables(Debtors)through sale
Conversion of account receivables into cash.
8. KINDS OF WORKING CAPITAL
WORKING CAPITAL
BASIS OF
CONCEPT
BASIS OF
TIME
Gross
Working
Capital
Net
Working
Capital
Permanent
/ Fixed
WC
Temporary
/ Variable
WC
Regular
WC
Reserve
WC
Special
WC
Seasonal
WC
9. Difference between permanent & temporary
working capital
Amount Variable Working Capital
of
Working
Capital
Permanent Working Capital
Time
Permanent and temporary working capital for Stable firm
11. IMPORTANCE OF WORKING CAPITAL
• Goodwill
• Easy loans
• Cash discounts
• Regular Supply of Raw Material:
• Regular payment of salaries, wages and other
day to day commitments
• Ability to Face Crises:
• Quick and regular return on investments