Working capital
We all know that enterprise
need two kind of capital fixed capital and working capital but the working
capital is more important to enterprise due to it’s day to day operation
Fixed
capital for need to acquire fixed asset Working capital to carry out day to day operation (working capital management is crucial for every enterprise working
capital is more complicated than the fixed capital due to continue process) The
working capital refer as short term asset or current asset used to day to day
operation whether big or small it may also be regarded as the portion of an
enterprise
Every running business need working capital a business which
is fully use the fixed capital for the supply of raw material for processing,
cash for the wage power and telephone, for the stock for finished goods for
meet demand & supply and giving credit to it’s customer
The accounting principal board of the American institute of
certified public accountants has defined
“ working
capital something called net working capital is represent by the excess of
current assets over current liabilities and identifies the relatively liquid
portion of total enterprise capital which constitutes a margin of buffer for
maturing obligation within the ordinary operating cycle of business “
Operating cycle of the working capital
Working capital is also called as circulating capital or
revolving capital this is mainly because the say to day operation or the never
ending operation continuous process where the money circulated in various form
of current assets in continued manner the fund may be tied in to raw material
for some period and later converted in to finished goods and than cash 
Finance is the life line of the enterprise mismanagement in
finance create problem for the enterprise so the working capital in a
enterprise depend on the proper regulation of the business because over
circulation or under circulation
( the fixed working cost is which is fixed in day to
day operation and won’t change ) but the variable working cost change according
time to time with the demand and supply
Working capital
management: The relationship between a firms short term assets and it’s
short term liabilities. The goal of the working capital management is to ensure
that a firm is able to continue its operating
To
manage working capital two character of current asset (1) shot life span (2)
transfer in other form of current asset The current asset have very shot life
span Investment remain in a particular for current asset The life span of the
current asset depend upon the tie required need to product promotion and sales
Formula for (working
capital = current asset –current liabilities)
Current asset
current
liabilities
Cash
creditors
Bank
Bill payable
Debtors
Bank overdraft
Shot term investment Outstanding
item
Bill receivable
Shot term loan
Pre paid item (advance payment) Unpaid dividend
Liabilities
|
Assets
|
Capital
10000
Profit 2000
Long term borrowing 6000
Sundry creditors
4000
Bills payables
500
Total 22500
|
Pant & machinery
7500
Land building
4000
Furniture
2500
Stock
2000
Sundry debtors
2500
Bill receivables
1500
Semi finished goods
2500
Total
22500
|
The gross working capital will be
Stock 2000
Sundry debtors
2500
Bill receivables 1500
Semi finished goods 2500
Gross working capital 8500
|
Total current asset
8500
Less total liabilities
Sundry creditors 4000
Bills payables 500
4500
Net working capital
13000
|
The ratio of current assets to current liabilities will
be 8500
13000 or 2:1
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