Question

what is working capital??​

Answer 1

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Every business needs to take the decision regarding the investment in current assets i.e. the working capital. Current assets refer to the assets that are converted into cash or cash equivalents in a short period of time (less than or equal to one year). There are two broad concepts of working capital namely, Gross working capital and Net working capital.

Gross working capital (or, simply working capital) refers to the investment done in the current assets. Net working capital, on the other hand, refers to the amount of current assets that is in excess of current liabilities. Herein, current liabilities are those obligatory payments which are due for payment such as bills payable, outstanding expenses, creditors, etc. Net Working Capital is calculated as the difference of current assets over current liabilities. i.e.

NWC = Current Assets − Current Liabilities

Answer 2

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WORKING CAPITAL is defined as the funds which are used in the day to day business operations of a company.

• The efficient management of working capital is important for both, the profitability and the financial health of the company.

• In layman’s term, every company needs a cash reserve to manage their daily running cost and that is known as the Working Capital.

Working capital is calculated as:

Working Capital = Current Assets - Current Liabilities

• Current Assets → Inventory, cash, and account receivables
• Current Liabilities → Account Payables And Short Term Loans