DEFINITION Working capital refers to that part of the firm’s capital, which is required for financing short-term or current assets such as cash marketable securities, debtors and inventories. It is also known as revolving or circulating capital or short-term capital.
These are those liabilities which are payable within a short period of time, generally within one year.
Creditors, B/P, Bank o/d, Short term loan, Proposed dividend etc.
Types of working capital Basis of concept Basis of nature Gross working capital Net working capital Fixed working capital Variable working capital Seasonal Precautionary Speculative
DIFFERENCE BETWEEN TEMPORARY AND PERMANENT CURRENT ASSETS Permanent current assets TIME AMOUNT (Rs.) Temporary current assets The amount of current assets that varies with seasonal requirements.
Sources of working capital Long term sources Short term sources Owned sources Borrowed sources Internal sources External sources Issue of shares Retained earnings Reserves Sale of fixed assets Debentures Long term debts Depreciation funds Provision for taxation Trade credit Advance from customers Public deposits Bank credit