Question

Write short notes on Financing of Working Capital.

Answer 1

Sources of Finance for Working Capital | Chron.com - Small ... The reason is that short-term debt ,such as promissory notes or lines of credit, are usually used as a means of working capital financing. This means that the company had an imbalance of revenues and cash flow to handle its needs, and that it sought a short-term solution.
Working capital (abbreviated WC) is a financial metric which represents operating liquidity available to a business, organisation or other entity, including governmental entities. Along with fixed assets such as plant and equipment, working capital is considered a part of operating capital. Gross working capital is equal to current assets. Working capital 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.

A company can be endowed with assets and profitability but may fall short of liquidity if its assets cannot be readily converted into cash. Positive working capital is required to ensure that a firm is able to continue its operations and that it has sufficient funds to satisfy both maturing short-term debt and upcoming operational expenses. The management of working capital involves managing inventories, accounts receivable and payable, and cash.