Submitted by: Submitted by ayankay
Views: 321
Words: 394
Pages: 2
Category: Business and Industry
Date Submitted: 10/28/2012 02:06 AM
CONCEPT OF WORKING CAPITAL
Capital can be defined as the amount or money-worth of the properties of owners with which a business or venture was started.
Working capital is the amount by which a company meets its immediate commitments. It represents excess of Current Assets over Current Liabilities in an Organisation.
Application of Working capital
• Working Capita = Internal Capital
• It is the amount by which company meets immediate commitments. The amount is not externally dependent.
• It is internally or self generated fund available for running day to day operations of the business.
• From balance sheet perspective, it represents excess of current assets ( tangible ) over current liabilities of an organisation.
WORKING CAPITAL COMPONENTS
Stock Management ( work in progress, Raw materials, finished goods)
Debtor Management (Trade, staff)
Creditor Management ( Trade or other creditors)
Cash Management
Prepayment
Trade investments
Bank
Cash in hand
Unpaid taxes
Unpaid dividends
Accruals
Inadequacy Working Capital Can be Obtained from the following sources :
• Bank credit ( Bridging Loan or Overdrafts)
• Acceptance credit
• Invoice discounting
• Bill finance
• Hire Purchase
• Leasing
• Trade Credit
• Factoring
WORKING CAPITAL MANAGEMENT
Management of working capital will have a direct effect on the way we manage our component of working capital as advised in conclusion.
• Stock management : The business should ensure that the stock should be maintained at optimal level. There should be no over stocking and proper system should be in place to identify slow moving items or obsolete stock when purchase is being made.
• Creditors management : Business should ensure that they negotiate a longer credit terms than credit granted on sales.
• Debtors management : Business should ensure a shorter credit terms with customer, lower than the one obtained from suppliers. Credit worthiness of customers is an...