NET WORKING CAPITAL
Net working capital = CA- CL
Net working capital is excess of current assets over current liabilities, i.e. current assets less current liabilities.
This concept of working capital is widely accepted.
This approach, however, does not reflect the exact position of working capital due to the following factors:
Valuation of inventories include write-offs
Debtor include the profit element
Debtor outstanding for more then a year likewise which are doubtful or not provide for are including as assets are also placed under the head ‘current assets’.
Non-moving & slow moving items of inventories are also include in inventories.
To assess the real strength of working capital position’ it is necessary to exclude non-moving & obsolete items from inventories. Working capital thus arrived at is termed as ‘Tangible Working Capital’.
Net working capital = CA- CL
Net working capital is excess of current assets over current liabilities, i.e. current assets less current liabilities.
This concept of working capital is widely accepted.
This approach, however, does not reflect the exact position of working capital due to the following factors:
Valuation of inventories include write-offs
Debtor include the profit element
Debtor outstanding for more then a year likewise which are doubtful or not provide for are including as assets are also placed under the head ‘current assets’.
Non-moving & slow moving items of inventories are also include in inventories.
To assess the real strength of working capital position’ it is necessary to exclude non-moving & obsolete items from inventories. Working capital thus arrived at is termed as ‘Tangible Working Capital’.