The time of commencement of business is known

The capital which is required to financecurrent assets is called working capital.

That is in operating daily businessof the firm effectively, some resources are needed and the capitals which areneeded to finance, these resources is called working capital.1 “Workingcapital may be defined as all the short term assets used in dailyoperation”—John. J Harpton. Working capital is defined varyingly keeping inview the objectives and purposes. To businessmen, working capital comprisescurrent assets of business whereas to the accountant/creditors/investmentanalysts working capital is understood as the difference of current assetsminus current liabilities.

Best services for writing your paper according to Trustpilot

Premium Partner
From $18.00 per page
4,8 / 5
4,80
Writers Experience
4,80
Delivery
4,90
Support
4,70
Price
Recommended Service
From $13.90 per page
4,6 / 5
4,70
Writers Experience
4,70
Delivery
4,60
Support
4,60
Price
From $20.00 per page
4,5 / 5
4,80
Writers Experience
4,50
Delivery
4,40
Support
4,10
Price
* All Partners were chosen among 50+ writing services by our Customer Satisfaction Team

This is also called the Net Working Capital. Thereis operative aspects of working capital i.e. current assets (which is known as’funds’also) employed in the business process form the gross working capital.Current assets comprise: cash, receivables, inventories, marketable securitiesheld as short-term investment and other items near cash or equivalent to cash.

This is also known as going-concern concept of working capital.2 i.       Typesof Working Capital –            The working capital incertain enterprise may be classified into following types: a)   Initial Working Capital – The capital whichrequired at the time of commencement of business is known as initial workingcapital.b)   Regular Working Capital – It is the kind ofcapital which is required to meet current expenses like purchasing raw materialand supplies, payment of wages, salaries and other regular expenses oforganisation.

c)    Reserve Margin Working Capital – This type of workingcapital generally utilized at the time of contingencies like extension ofmachinery, inflation, strike, lay off, natural calamities, etc.d)   Long-term Working Capital – The working capitalrepresents the amount of funds needed to keep a company running in order tosatisfy the demand at the lowest point in long term is called as Long-termWorking Capital.e)   Short-term Working Capital – This type of workingcapital varies from one firm to another & also varies due to activity oforganisation. Temporaryworking capital should be obtained from such sources, which will allow itsreturn when it is not in use.3f)    Gross Working Capital – Gross working capital refers to thefirm’s investment in current assets. Current assets are those assets which canbe converted in to cash with in an accounting year and includes cash short-termsecurities, debtors bills receivable and stock.4g)   Net Working Capital – Net working capital refers to thedifference between current asset and Current liabilities. Current liabilitiesare those claims of outsiders, which are expected to mature for payment withinaccounting year and include creditors, bills payable and outstanding expenses.

Net Working capital can be positive or negative. A positive net working capitalwill arise when current assets exceed current liabilities.5 ii.       Determinant of Working Capital –  Working capital is constantly affected by thecriss-crossing economic currents flowing about a business. The nature of firm’sactivities, the industrial health of the country, the availability of material,the ease or tightness of the money markets are all part of these shiftingforces. It is difficult to rank them because the influence in individual itemsrises and wanes over the years as a company’s internal policies and environmentin which it operates change6.

 The factors are – a)  The requirement of working capital of anorganization depends upon the nature & size of business.b)  Production polices.c)   Growth of business.d)  Competitive Conditions.

e)  Dividend policy.f)   Working capital varies due to salespolicies.g)  The greater the risk, more the need ofworking capital.

 The formula which is used for assessing theworking capital requirement is listed below: A.   Cash                                                               XXXXAccountRevivable                                       XXXXInventory                                                       XXXTotal of A (Current Assets)       =                 XXXXXLess:B.     Accounts Payable                                          XXXXShortterm borrowings                                  XXXXAccruedliabilities                                          XXXXTotal of B (Current Liabilities)  =        XXXXXWorkingCapital = Total of A – Total of B1Lesson 8- Working Capital – Financial, Treasury and Forex Management – ICSI 2Lesson 8- Working Capital – Financial, Treasury and Forex Management – ICSI3Lesson 8 : Working Capital – Financial, Treasury and Forex Management – ICSI4Lesson 8 : Working Capital – Financial, Treasury and Forex Management – ICSI5Lesson 8 : Working Capital – Financial, Treasury and Forex Management – ICSI6Lesson 8 : Working Capital – Financial, Treasury and Forex Management – ICSI