Concepts of working capital, Financial Management

CONCEPTS OF WORKING CAPITAL

There are two concepts of Working Capital - Net working capital and Gross Working capital.

1. Gross Working Capital

Gross Working capital relates to the firm's investment in current assets (Short Term Securities, Cash, Debtors, Bills Receivable and Inventory).  Current assets are those assets which can be converted into cash within a year. This idea focuses on - how to optimize investment in current assets and how should they be financed?  In this instance, both excessive and inadequate investment in current assets should be avoided.

2.  Net Working Capital

Net Working capital relates to the variation between current assets and current liabilities.  It may be negative or positive.  This idea is a qualitative concept.  It shows the liquidity position of the firm and suggests the extent to which working capital needs may be financed by permanent sources of capital. Current assets should be sufficiently in excess of current liabilities to constitute a margin for maturing obligations within the ordinary operating cycle of a business. This idea also covers the question of judicious mix of short-term and long-term funds for financing current assets.

The two concepts of Working Capital are not exclusive rather they have equal significance from management's view point.

Posted Date: 10/16/2012 1:23:21 AM | Location : United States







Related Discussions:- Concepts of working capital, Assignment Help, Ask Question on Concepts of working capital, Get Answer, Expert's Help, Concepts of working capital Discussions

Write discussion on Concepts of working capital
Your posts are moderated
Related Questions
Absolute Performance Standard is a method of measuring an organization's development and how effective and efficient it is at operating its business. The absolute performance stand

Determine the term- Component Cost and Composite Cost A company may contemplate to raise desired amount of funds by different sources comprising preferred stock, debentures and

Will you please give the defination of "Future Value Of An Annuity"?

return risk and security market line /net present value and investment critirea actually iwill be tested in 6 question culculation and 1 question theory about risks

CONCEPTS OF WORKING CAPITAL There are two concepts of Working Capital - Net working capital and Gross Working capital. 1. Gross Working Capital Gross Working capital re

Due to the complexity of the tasks involved in many projects, communication of responsibility for those tasks is often helped by means of graphical planning techniques.

What is the Modigliani and Miller theory of dividends?  Explain. The Modigliani-Miller theory of dividends says so as dividend theory is irrelevant.  They claim so as to it is

1 In the process of considering two job offers, Jill Saunders wants to determine which position would have the higher monetary value. Job 1 has a salary of $42,500 with $4,800 of n

Prices and Yields The face value of the government security is Rs.100 or Rs.1,000. Earlier, that is, before 1950s the government bonds were issued at a discount. There was no f

Q. Limitations of Traditional Approach in financial management? Limitations of Traditional Approach: - The traditional approach continued till mid 1950's. It has at the prese