Working Capital Calculation

May 19th, 2015
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The goal of working capital management is to manage the firm s current assets and current liabilities in such way that the satisfactory level of working capital is mentioned. The current assets should be large enough to cover its current liabilities in order to ensure a reasonable margin of the safety.

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CHAPTER IINTRODUCTIONWorking capital management is concerned with the problems arise in attempting to manage the current assets, the current liabilities and the inter relationship that exist between them. The term current assets refers to those assets which in ordinary course of business can be, or, will be, turned in to cash within one year without undergoing a diminution in value and without disrupting the operation of the firm. The major current assets are cash, marketable securities, account receivable and inventory. Current liabilities ware those liabilities which intended at there inception to be paid in ordinary course of business, within a year, out of the current assets or earnings of the concern. The basic current liabilities are account payable, bill payable, bank over-draft, and outstanding expenses. The goal of working capital management is to manage the firm s current assets and current liabilities in such way that the satisfactory level of working capital is mentioned. The current assets should be large enough to cover its current liabilities in order to ensure a reasonable margin of the safety. 1.1DEFINITION OF WORKING CAPITAL According to Guttmann & Dougall Excess of current assets over current liabilities . According to Park & Gladson The excess of current assets of a business (i.e. cash, accounts receivables, inventories) over current items owned to employees and others (such as salaries & wages payable, accounts payable, taxes owned to

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