Working Capital Calculation

May 19th, 2015
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Aberystwyth University
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Funds are also needed for short-term purposes for the purchase of raw materials, payment of wages and other day-to-day expenses,etc. These funds are known as working capital.

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Meaning of Working Capital:Funds are also needed for short-term purposes for the purchase of raw materials, payment ofwages and other day-to-day expenses,etc. These funds are known as working capital. InSimple words, working capital refers to that part of the firms capital which is required forFinancing short term or current assets such as cash, marketable securities, debtors andInventories.Funds , thus , invested in current assets keep revolving fast and are beingConstantly converted into cash and this cash flows out again in exchange for other currentassests. Hence, it is also known as revolving or circulating capital or short-term capital.Working capital is the amount of funds necessary to cover the cost of operating the enterprise.Concept of Working Capital:1 Gross Working Capital2Net Working Capital1 In the broad sense, the term working capital refers to the gross working capital andRepresents the amount of funds invested in current assets2 Net Working Capital: In a narrow sense, the term working capital refers to net workingCapital. Net working capital is the excess of current assets over current liabilitiesNet working Capital= Current Assets- Current LiabilitiesOperating Cycle : Working Capital refers to that part of firms capital which is required forFinancing short-term or current assets keep revolving fast and being constantly convertedinto cash and this cash cash flows out again in exchange for other current assets. Hence, it isalso know

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