{"id":6499,"date":"2021-09-19T16:41:45","date_gmt":"2021-09-19T11:11:45","guid":{"rendered":"https:\/\/scholarsclasses.com\/blog\/?p=6499"},"modified":"2025-10-07T20:08:02","modified_gmt":"2025-10-07T14:38:02","slug":"meaning-of-working-capital","status":"publish","type":"post","link":"https:\/\/scholarsclasses.com\/blog\/meaning-of-working-capital\/","title":{"rendered":"Meaning of Working Capital – Scholarszilla"},"content":{"rendered":"\n
\"Meaning<\/figure>\n\n\n\n

Meaning of Working Capital<\/strong><\/h2>\n\n\n\n

Working capital is the capital which is used to carry out the day to day business activities.<\/em><\/strong><\/p><\/blockquote><\/figure>\n\n\n\n

After estimating fixed capital<\/a> requirement of the business firm, it is necessary to estimate the amount of capital, that would be needed to ensure smooth functioning of the business firm. A business firm requires funds to store adequate raw material in stock. <\/p>\n\n\n\n

A firm would need capital to maintain sufficient stock of finished goods. In actual practice, goods are sold out in cash or on credit. Goods sold on credit do not fetch cash immediately. The firm will have to arrange for funds till the amount is collected from the debtors. <\/p>\n\n\n\n

Cash is also required to pay overheads. Since uncertainty is always a feature of a business, some excess cash also should be maintained to meet unexpected expenses.<\/p>\n\n\n\n

Thus, a business firm will have to arrange capital for the following
<\/strong>a) For building up inventories
b) For financing receivables
c) For covering day-to-day operating expenses.<\/p>\n\n\n\n

The capital invested in these assets is referred to as \u2018Working capital<\/a><\/strong>\u2019. The concept of working capital is viewed differently by leading authorities. Some authorities consider working capital as equivalent to excess of current assets over current liabilities. <\/p>\n\n\n\n

Gerstenbergh<\/em><\/strong>, defines it as, \u2018\u2018The excess of current assets over current liabilities.<\/strong>\u2019\u2019 This approach refers to \u2018Net Working Capital\u2019. Gerstenbergh does not call it working capital. He prefers to call it \u2018circulating capital\u2019. <\/p>\n\n\n\n

Other authorities viewed working capital as equivalent to current assets. According to J. S. Mill<\/em><\/strong>, \u201cThe sum of current assets is working capital<\/strong>.\u201d This approach has broader application. It takes into consideration all current assets, of the company. It refers to \u2018Gross Working Capital<\/strong>\u2019.<\/p>\n\n\n\n

Factors affecting Working Capital requirement<\/a><\/strong><\/p>\n","protected":false},"excerpt":{"rendered":"

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