Nature of Working Capital:
Working Capital Management is concerned with the problems that arise in attempting to organize the Current Assets, the inter-relationship and Current Liabilities that exists between them. The term Current Assets defines to those Assets which in the ordinary course of business can be, or will be, converted into Cash within one year without undergoing a diminution in value and without difficult the operations of the firm. The Major Current Assets are Cash, Accounts Receivables, Marketable Securities and Inventory.
Current Liabilities are those Liabilities, which are proposed at their inception, to be paid in the ordinary course of business, within a year out of the present assets or the earnings of the concern .The basic Current Liabilities are Accounts Payable, Bank Overdraft, Bills Payable, and outstanding expense. The goal of Working Capital Management is to organize the firm's Assets and Liabilities in such a way that a satisfactory level of working capital is sustained. This is so because if the firm will not maintain a satisfactory level of working capital, it is likely to become insolvent and can even be forced into bankruptcy.