Working Capital Management:
“Working capital is a surplus of current assets over current liabilities. In another words, the amount of current assets that is more than current liabilities is termed as Working Capital. When current liabilities are nil then, working capital will be equivalent to current assets. Working capital demonstrates strength of business in short period of time. When a company contain some amount in the form of working capital, it means Company contain liquid assets, with this money company can face all crises position in market. "
Formula of Calculating Working Capital:
Working Capital = Current Assets - Current Liabilities
Current Assets: Those assets which can be transformed into cash within 1 year or less than one year. In current assets, we comprise cash, bill receivables, bank, debtors, prepaid expenses and outstanding incomes.
Current Liabilities: Those liabilities that can be paid to particular parties in 1 year or less than 1 year at their maturity. In current liabilities, we comprises creditors, bank overdraft, stupendous bills, bills payable and short term loans, outstanding expenditures and advance incomes.Important things about Working Capital:
1. Working Capital can be negative. At that time, we add up one word “deficiency" in the back of working capital. This means when Current Liabilities are more than current assets, it is termed as working capital deficiency or negative working capital or inverse working capital.
2. Working capital can be simply adjusted, when Accounts manager recognizes different methods of managing working capital. He can try to obtain short term loan or he can raise working capital by appropriate management of inventory and outstanding incomes and debtors.
3. Working capital can as well change by Changing in Cash Conversion period. The Cash conversion period is a period in which company modifies current assets into the cash or bank.
4. Working capital can as well positive by rising growth rate of company. When company does not invest more money and raise profit, the similar amount will rise in the cash position of company and with cash company can raise their working capital position.
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