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What is working capital explain the constituents of working capital?
Wiki User
∙ 12y ago
Working capital (abbreviated WC) is a financial metric which represents operating liquidity available to a business, organization, or other entity, including governmental entity. Along with fixed assets such as plant and equipment, working capital is considered a part of operating capital. Net working capital is calculated as current assets minus current liabilities. It is a derivation of working capital, that is commonly used in valuation techniques such as DCFs (Discounted cash flows). If current assets are less than current liabilities, an entity has a working capital deficiency, also called a working capital deficit.
Net Working Capital = Current Assets − Current Liabilities
Net Operating Working Capital = Current Assets − Non Interest-bearing Current Liabilities
Equity Working Capital = Current Assets − Current Liabilities − Long-term Debt
A company can be endowed with assets and profitability but short of liquidityif its assets cannot readily be converted into cash. 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.
COMPONENTS OF WORKING CAPITAL
CURRENT ASSETS (LOANS AND ADVANCES) SHORT TERM ASSETS
These are those real assets which are intended to be disposed off and get it converted into money / money's worth within a period of 12 months.
Examples:
® Closing Stock (RM, WIP, Finished Goods)
® Sundry Debtors
® Bills Receivable
® Cash in Hand and Bank
® Pre-paid Expenses
® Loans Given
® Advance to Suppliers, etc.
CURRENT LIABILITIES (AND PROVISIONS) SHORT TERM LIABILITIES
These are those outsiders liabilities which are payable within a period of 12 months.
Examples:
® Sundry Creditors
® Bills Payable
® O/S Expenses
® Advance from Customers
® Tax Payable
® Bank Overdraft, etc.
Working Capital is also known as circulating capital, fluctuating capital and revolving capital. The magnitude and composition of working capital keeps on changing continuously, in the course of business.
FORMAT - STATEMENT OF ESTIMATION OF WORKING CAPITAL
Particulars
W.N.
Rs.
Rs.
a) Current Assets, (Loans & Advances)
XXX
b) Current Liabilities (& Provisions)
XXX
Working Capital ( a-b)
XXX
(+) Safety Margin
XXX
Estimated Working Capital
XXX
Wiki User
∙ 12y ago
Working capital is the difference between a company's current assets and current liabilities. It represents the funds available for the day-to-day operations of a business. The constituents of working capital include cash, accounts receivable, inventory, Accounts Payable, and short-term debt. These components help determine the efficiency and liquidity of a company in managing its short-term obligations.
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Explain the concept of working capital?
Working capital represents a company's ability to cover its short-term operational expenses using its current assets like cash, inventory, and accounts receivable. It is calculated by subtracting current liabilities from current assets. Positive working capital indicates a company can meet its short-term obligations, while negative working capital may signal liquidity issues.
Working capital formula?
The formula for calculating working capital is: Working Capital = Current Assets - Current Liabilities. It represents a company's ability to cover its short-term obligations with its current assets. A positive working capital indicates that a company has enough assets to cover its liabilities, while a negative working capital may suggest liquidity issues.
What is working capital?
Working capital is a measure of a company's operational efficiency and short-term financial health, calculated by subtracting current liabilities from current assets. It represents the funds available for day-to-day operations and is important for assessing a company's liquidity and ability to cover short-term obligations. A positive working capital indicates that a company has more current assets than liabilities, while a negative working capital may suggest potential financial difficulties.
What is over trading and under trading in working capital management?
Over trading in working capital management occurs when a company relies too heavily on short-term financing to fund its operations, leading to excessive levels of working capital and potential financial risk. Under trading, on the other hand, happens when a company has insufficient working capital to support its day-to-day operations, which can lead to liquidity issues and impact the company's ability to meet its short-term obligations. Finding the right balance in managing working capital is crucial for a company's financial health and sustainability.
How to compose a literature review on working capital management?
To compose a literature review on working capital management, you should start by conducting a thorough literature search on reputable databases. Organize the review by introducing the topic, discussing key theories and concepts, presenting the findings from various studies, and identifying gaps for future research. Finally, critically analyze and synthesize the information to provide a comprehensive overview of the current state of knowledge in the field of working capital management.
What do you understand to be the working capital of a business explain?
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Explain various components of working capital management?
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Explain the factors detemimining working capital requirements of a firm?
The nature of the business, seasonality of production and the production cycles are some of the factors that determine the working capital requirements of a firm.
Describe and explain the concept of working capital management and why it is important to an organization?
Working capital is the money available to the company to carry out its day to day operations. Managing this capital is important to every company because important functions of the company may be compromised if capital is not managed properly.
Explain the concept of working capital?
Working capital represents a company's ability to cover its short-term operational expenses using its current assets like cash, inventory, and accounts receivable. It is calculated by subtracting current liabilities from current assets. Positive working capital indicates a company can meet its short-term obligations, while negative working capital may signal liquidity issues.
What are the determinate of working capital?
conclusion of determinant of working capital
What is a a working capital?
WORKING CAPITAL STATEMENT (WCS) is part of the financial statements' "Statements of Cash Flows or Changes in Financial Position." The WCS normally includes sections covering: Sources of Working Capital, Uses of Working Capital, and Working Capital Changes.
What is optimal working capital?
Optimal working capital is that point where exact amount of working capital is available to run day to day activities and there is no excess or shortage of working capital at any point.
What is the optimum working capital?
Optimum working capital is that point where working capital is neither short from requirements nor excess working capital available at any time during fiscal year.
How to asses Req of working capital in IT Company?
"How to asses Req of working capital in IT Company?" "How to asses Req of working capital in IT Company?"
How do you explain cost of capital and its types?
Explain the term cost of capital and its importance in investment decision
What is a working capital statement?
WORKING CAPITAL STATEMENT (WCS) is part of the financial statements' "Statements of Cash Flows or Changes in Financial Position." The WCS normally includes sections covering: Sources of Working Capital, Uses of Working Capital, and Working Capital Changes.
