Working capital is a financial metric which represents the operating liquidity of a business enterprise. It is a measure of a company’s efficiency and its short-term financial position.
Working capital is the difference between the current assets and the current liabilities.

 
  Working Capital = Current Assets – Current Liabilities
 

Current Assets includes Accounts Receivable (Bills receivable and Sundry Debtors less provision for doubtful debts), Inventories, Cash and Cash Equivalents and Other Current Assets (excluding Loose tools, Stores and Spares, and Fictitious Assets).
Current Liabilities include Accounts Payable (Bills Payable and Sundry Creditors), Short Term Borrowings, Short Term Provisions, and Other Current Liabilities.
When the Current Assets exceed the Current Liabilities (Positive Working Capital) it ensures that a firm has sufficient funds to satisfy both maturing short-term debt and to carry on the day-to-day operations.
Negative Working Capital i.e. excess of current liabilities over current assets indicates the inability of a firm to meet its short-term financial obligations. It represents working capital deficiency.

Opt for highly recommended Accounting and Taxation Courses for a better understanding of the concept.
WORKING CAPITAL MANAGEMENT
Working capital management refers to the decisions regarding the working capital. These involve managing the relationship between a firm’s short-term assets and its short-term liabilities in order to ensure sufficient cash flow to meet short-term debt obligations and operating expenses.
The policies and techniques for the management of working capital are:

1. Cash Management
Cash Management helps in the identification of the cash balance to allow the Business Analyst courses to meet day-to-day expenses and to reduce the cash holding costs. Successful cash management prevents short-term insolvency and ensures the availability of sufficient funds to meet the operating expenses.

Know about– Accounting and Taxation Course in Delhi

2. Inventory management
Inventory management is the overseeing and controlling of the ordering, storage, and use of assets that are intended for use in the production of goods meant for sale or are finished products held for sale in the ordinary course of business.
It helps in the identification of the level of inventory which allows for uninterrupted production and at the same time reduces the investment in raw materials and minimizes the reordering costs. This helps in increasing cash flow.

3. Short Term financing
Short Term financing embraces borrowing or lending of funds for a short period of time. It is generally obtained for financing the current assets and lasts for one year or less.
Majorly all big enterprises use this as a source of finance and the current liabilities in the balance sheet indicate the uses of short-term finance.

Find out-Accounting and Taxation Course in Kolkata

4. Working Capital Ratio
Working Capital Ratio, also known as the current ratio is an important indicator to assess the ability of the enterprise to meet its short-term debts in time.
Working Capital Ratio is computed using the following formula

 
  Working Capital Ratio  =      Current Assets
 
                                                    Current Liabilities
 
Images

Any value of ratio below 1 is considered negative working capital and represents the inadequate amount of assets whereas the value of the ratio between 1.2 -2.0 indicates that the company has a sufficient amount of assets to cover its debts.

What is the concept of working capital?

In an ordinary sense, working capital denotes the amount of funds needed for meeting day-to-day operations of a concern. … Hence it deals with both, assets and liabilities—in the sense of managing working capital it is the excess of current assets over current liabilities. Click on the link for a detailed understanding of the different elements of financial statement.

Is cash included in working capital?

Unlike inventory, accounts receivable and other current assets, cash then earns a fair return and should not be included in measures of working capital

Recommended Reads:-

Also check this video:

Accounting and Taxation Course

Ranked Amongst Top 3 Course | Recognized by Govt of India | ISO 29990:2010 Certified | Award winning Institute | 100% Practical Training

View Course

Recommended videos for you

20 Comments

  1. Divya rajoura Reply

    I found the ‘Working Capital’ course highly informative, covering aspects vital for effective financial management. The interactive nature of the lectures kept me engaged, and the quizzes tested my understanding. I now understand how working capital influences a company’s operational efficiency and overall performance.Great blog

  2. Mahi yadav Reply

    For me, reading this blog post about the Best CA Firms was quite interesting. I quickly read this and then finished all the other articles on this website that were based on the top 50 consulting businesses in India. I’m quite grateful for the team’s effort.

  3. As a business owner, I found this article to be very informative and relevant. The author does an excellent job of explaining the basics of working capital management and why it is important for businesses of all sizes. The tips and strategies for improving working capital management are also valuable and easy to implement.

  4. The “Working Capital Management Introduction” blog serves as a great resource for anyone looking to improve their financial management skills. The use of real-life examples makes it easy to understand the concept.

  5. It was a good experience for me to study the various concepts and applications when I did the working capital management introduction. I was really impressed with the tutor’s participation in the practical activities, and everything was handled so expertly. Because it wasn’t simply theory, this helps students learn more quickly. strongly advised. Thanks to HENRY HARVIN provide me this blog.

  6. The Working Capital for me, reading this blog post about the Best CA Firms was quite interesting. I quickly read this and then finished all the other articles on this website that were based on the top 50 consulting businesses in India. I’m quite grateful for the team’s effort. I could suggest that every new student take this course from HENRY HARVIN.

  7. I found this Working capital management introduction post on Best CA Firms to be incredibly fascinating to read. I read this article in a matter of minutes and then immediately finished reading all the other articles on this website that were based on the top 50 consulting businesses in India. The HENRY HARVIN team’s effort was much appreciated by me.

  8. This is perhaps the most proper course for a fresher to begin his transporter and to settle well in his future . I might want to prescribe this course to each fresher to seek after once.I was suggested by many about accounting course and after searching a lot i visited you blog and now i am want to continue this course. Please guide me with course information.

  9. This is a really interesting blog of Best CA Firms for me in my read. I read this within minutes and immediately completed all the other articles posted on top 50 ca firms in India this website based on this topic. I really appreciate the effort made by the team. We appreciate you sharing this useful information regarding the Bat course Certificaiton

  10. I took the BAT course certification, and it was a wonderful experience to learn the various ideas and applications. Everything was handled so expertly, and I was particularly impressed with the tutor’s involvement in the practical tasks. This assists learners in learning more quickly because it wasn’t just theories. Very highly advised.

  11. We appreciate you sharing this useful information regarding the Bat course Certificaiton Additionally, I want to thank you for sharing this blog’s greatest knowledge. I value the work you put into this blog. A well explained blog on working capital. It’s always a pleasure to read such a nicely written article.

  12. HI i am here again after 1 year to share my Feedback with us this is to be some Great Experience with Ask Henry Harvin. During Previous lockdown 2020 I completed graduation from Shubharti university Meerut. Due to covid Situation, my exams was stuck for 2 Month. i did not know where I could take admission From Bat course for business accounting and taxation course but in the mean time all the institution were closed. after a 3-month wait, i have decided to take admission online for business accounting and taxation course. Detailed information on working capital. Very efficient content. well done!

  13. Not only is this blog regarding best Bat course Coaching information but also explanatory in all its way possible. I appreciate the writer of this blog for providing such valuable information in one place.I like to see more types of blogs like that its very interesting and informative. I checked all Bat course Coaching center in India. I recommended all my friends to take a look and have a read on this superbly detailed and knowlegeble topic.

  14. HI i am here again after 1 year to share my Feedback with us this is to be some Great Experience with Ask Henry Harvin. During Previous lockdown 2020 I completed graduation from Shubharti university Meerut. Due to covid Situation, my exams was stuck for 2 Month. i did not know where I could take admission From Bat course Institute for business accounting and taxation course but in the mean time all the institution were closed. after a 3-month wait, i have decided to take admission online for business accounting and taxation course .

  15. This is a really interesting blog of Best CA Firms for me in my read. I read this within minutes and immediately completed all the other articles posted on top 50 ca firms in India this website based on this topic. I really appreciate the effort made by the team.

  16. The article is quite informative and provided me with all the relevant knowledge. This article covering the 100 Best CA Firms in India is truly the best. Now I can plan it better!!!

  17. juhi sharma Reply

    A well explained blog on working capital. It’s always a pleasure to read such a nicely written article.

  18. Juhi shukla Reply

    Detailed information on working capital. Very efficient content. well done!

Join the Discussion

Interested in Henry Harvin Blog?
Get Course Membership Worth Rs 6000/-
For Free

Our Career Advisor will give you a call shortly

Someone from India

Just purchased a course

1 minutes ago

Noida Address:

Henry Harvin House, B-12, Sector 6, Noida, Uttar Pradesh 201301

FREE 15min Course Guidance Session:

Henry Harvin Student's Reviews
Henry Harvin Reviews on Trustpilot | Henry Harvin Reviews on Ambitionbox |
Henry Harvin Reviews on Glassdoor| Henry Harvin Reviews on Coursereport