WORKING CAPITAL MANAGEMENT

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Meaning of Working Capital:

- Working Capital is the amount of Capital that a Business has available to meet the day-to-day cash requirements of its operations
- Working Capital is the difference between resources in cash or readily convertible into cash (Current Assets) and organizational commitments for which cash will soon be required (Current Liabilities)
- It refers to the amount of Current Assets that exceeds Current Liabilities (i.e. CA - CL)
- 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. Working Capital is also known as Revolving or Circulating Capital or Short-Term Capital

Working Capital Concepts:

- Gross Concept: It means Current Assets. This is knows as Quantitative aspect of Working Capital
(Focus is on (i) Optimum Investment in Current Assets and (ii) Financing of Current Assets)
- Net Concept: It means difference between Currents Assets & Current Liabilities. This is knows as Qualitative aspect of Working Capital
(Focus is on (i) Liquidity Position of the Firm and (ii) WC Amount that can be financed by Permanent sources of Funds)
Meaning of Operating Cycle/Working Capital Cycle:
- Cash