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
Typically in a bond, we find an inverse relation between the price and the required yield. We know that the price of the bond is the present val

Agency Mortgage-Backed Securities (AMBS) are securities that are backed by the mortgage loans. These securities include mortgage passthrough securities, stripped

1.How would you judge the potential profit of Bajaj Electronics on the first year of sales to Booth Plastics and give your views to increase the profit? 2. Suggestion regarding C

Q. Explain the Adjusting Journal Entry? Adjusting Journal Entry - An accounting entry made into a subsidiary ledger known as the Generaljournal to account for a periods changes

Financial accounting: Financial accounting attempts to establish the value of a particular organisation at a specific point in time, and its earnings over a specified period of

K is a kitchen and bathroom design and installation company which currently has showrooms in one region only of Country T. The company has enjoyed considerable success since it was

Sega Inc. expects earnings/dividends to grow at an annual rate of 30 percent for the next 4 years. After that they feel that the market will get saturated and the growth rate will

Determine about the call and put option A call/ put option provision allow both issuing company and investor to redeem the bonds at a specified amount before maturity date. Lon

Explain the concept of the world beta of a security. Answer:  The world beta calculates the sensitivity of returns to a security to returns to the world market portfolio. It is

Global Economy: The size of the world stock market grew steadily in the 1970s and 1980s and crossed the $12 trillion figure in 1993. The share of the US market decreased tremen