Quote:
Originally Posted by projects4mp  The objective of running any Company is to earn profits. A Company will require funds to acquire “Fixed Assets” like Land, Building, Plant & Machinery, Equipment, Tools, etc and also to run business viz, for it’s day to day operations (working). Capital or Funds required for a Company can therefore be bifurcated as Fixed Capital & Working Capital.
Funds required for day to day working would be to finance production and sales. For production, funds are needed for purchase of Raw Materials / Stores / Fuel, for payment of Labour, Power Charges, etc, for storing Finished Goods, and for financing the sales, by way of sundry debtors / receivables.
Concept:
Working Capital is often defined as the excess of Current Assets over Current Liabilities. Current Assets are those, that in the ordinary course of business can be or will be converted into cash within one year (during operating cycle of the industry). Current Liabilities are those liabilities intended, at their inception, to be paid in the ordinary course of business within a reasonably short time (normally one year) out of current assets or the income of the business. |
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