Working Capital Calculation

May 19th, 2015
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Aberystwyth University
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Working capital management is also one of the important parts of the financial management.It is concerned with short-term finance of the business concern which is a closely related trade between profitability and liquidity.

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WORKING CAPITALWorking capital management is also one of the important parts of the financial management. It is concerned with short-term finance of the business concern which is a closely related trade between profitability and liquidity. Efficient working capital management leads to improve the operating performance of the business concern and it helps to meet the short term liquidity. Hence, study of working capital management is not only an important part of financial management but also is overall management of the business concern. Working capital is described as the capital which is not fixed but the more common uses of the working capital is to consider it as the difference between the book value of current assets and current liabilities. MEANING OF WORKING CAPITALCapital of the concern may be divided into two major headings. Fixed capital means that capital, which is used for long-term investment of the business concern. For example, purchase of permanent assets. Normally it consists of non-recurring in nature. Working Capital is another part of the capital which is needed for meeting day to day requirement of the business concern. For example, payment to creditors, salary paid to workers, purchase of raw materials etc., normally it consists of recurring in nature. It can be easily converted into cash. Hence, it is also known as short-term capital.DefinitionsAccording to the definition of Mead, Baker and Malott, Working Capital means Current Assets.Ac

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