Meaning of Working Capital Essay

Working capital refers to the part of total capital which is required for day to day working of the business. The funds are required by the business for conducting its regular operations such as purchase of raw materials of finished goods, payment of wages & manufacturing expenses, office and administrative expenses, selling & distribution expenses. The funds necessary for making such regular payments of business is called Working Capital therefore have been defined as â€Å"the amount of funds necessary to cover cost of operating the enterprise.† The working capital of a business enterprise is measured on the basis of its funds locked up in various current assets such as inventors, accounts receivables and cash & bank balance. 2.2 Definition of Working Capital– Various authorities have difined working capital in following manner. (1)â€Å"Working Capital is the amount of funds necessary to cover the cost of operating the buisness enterprise.â€Å"(Shuibn) (2)â€Å"Working Capital is the difference between the book value of the current assets.and the current liablities.â€Å"(Hoagland) 2.3 Circulating Capital– â€Å"Circulating capital means current assets of accompany that are changed in the ordinary course of business from into another, as for example from cash to inventories, inventories to receivables and receivables into cash.† Cash Raw Receivables Materials Finished goods Work-in-progress 2.4. Classification of Working Capital – 1. Gross Working Capital5. Variable Working Capital 2. Net Working Capital 6. Balance Sheet Working Capital 3. Negative Working Capital 7. Cash Working Capital 4. Permanent Working Capital 2.5. Sources of Working Capital- The following are the some important of the sources of working capital.