INTRODUCTION OF WORKING CAPITAL
CYCLIC DIAGRAM OF WORKING CAPITAL
In general, companies that have a lot of money will be
successful since they can expand and improve their operations.
Along with fixed assets such as plant and equipment, cash is considered a part
of operating capital.
It is calculated as current assets minus current liabilities.
If current assets are less than current liabilities, an entity has a working
capital deficiency, also called a Working capital deficit.
Working capital is money available to a company for dayto-day operations.
Working capital measures how much in liquid assets a
company has available to build its business.
How It Works/Example:
Here is some balance sheet information about XYZ Company:
BALANCE SHEET FOR COMPANY XYZ
65,000 TOTAL CURRENT
Using the working capital formula and the information above from we can
calculate that XYZ Company's working capital is:
Rs.160,000 – Rs.65,000 = Rs.95,000
Operating Cycle Of Working Capital
5. ACCOUNT RECEIVED
4. FINISHED GOODS
2. RAW MATERIAL
3. WORK IN PROGRESS
Gross Working Capital = Total Current Assets
Net Working Capital = Excess of Current Assets over
Working Capital Deficit = Excess of Current Liabilities
over Current Assets.
Working Capital = Current Assets - Current Liabilities