Learn what is Working capital | How Do You Calculate Working Capital and how to manage it?
Learn what is Working capital | How Do You Calculate Working Capital and how to manage it?
Meaning Of Capital of the Business:
The capital of the concern may be divided into two major headings.
Definitions-
According to the Scholar Views –
1. “The sum of the current asset is the working capital of a business”. - J.S.Mill.
2. “Working Capital refers to a firm’s investment in short-term assets, cash, short-term securities, accounts receivables and inventories”.- Weston and Brigham.
3. “Any acquisition of funds which increases the current assets, increase working capital also for they are one and the same”.- Bonneville.
4. “Working Capital is the amount of funds necessary to cover the cost of operating the enterprises”. - Shubin.
The concept of Working Capital
Working capital can be classified or understood with the help of the following two important concepts.
Fig-2: Concept of Working Capital
1. Gross Working Capital:
Gross Working Capital is a general concept that determines the working capital concept. Thus, the gross working capital is the capital invested in the total current assets of the business concern.
Gross Working Capital is simply called as the total current assets of the concern.
GWC=CA
2.
Net Working capital definition:
Net Working Capital is the specific concept, which considers both current assets and the current liability of the concern.
Net Working Capital is the excess of current assets over the current liability of the concern during a particular period.
If the current assets exceed the current liabilities it is said to be positive working capital; it is reversed, it is said to be Negative working capital.
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