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WORKING‌ ‌CAPITAL‌ ‌MANAGEMENT‌ ( INTRODUCTION - DEFINITION - NATURE OF WORKING CAPITAL )

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INTRODUCTION

                   Working capital may be regarded as the life-blood of a business. Its effective provision can ensure the success of a business. Working capital is required to finance the payment of wages, salaries, buying of raw materials, etc. In simple language, “working capital” means liquid funds representing the excess of current assets over current liabilities. It is also known as circulating capital. The effective management of working capital is important from the point of view of both liquidity and profitability.

DEFINITION

           According to Hoagland, “Working capital is descriptive of that capital which is not fixed. But the more common use of the working capital to consider it as the difference between the book value of the current assets and the current liabilities”.

         According to Field, Backer and Maillot, “Working capital means a sum of current assets only”.

    According to Lincoln, Saliers, Stevens, “Working capital means current assets less current liabilities”.

NATURE OF WORKING CAPITAL

                   Working capital management is concerned with the problems that arise in attempting to manage the current assets, the current liabilities, and the interrelationship that exists between them. The term current assets refer to those assets, which in the ordinary course of business can be, or will be, converted into cash within one year without undergoing a diminution in value and without disrupting the operations of the firm. Current liabilities are those liabilities, which are intended, at their inception, to be paid in the ordinary course of business, within a year, out of the current assets or earnings of the concern. The goal of working capital management is to manage the firm’s current assets and liability in such a way that a satisfactory level of working capital is maintained. The interaction between current assets and current liabilities is, therefore, the main theme of the theory of working management.

                   The working capital management may be defined as the management of a firm’s source and uses of working capital in order to maximize the wealth of shareholders. The proper working capital management requires both medium-term plannings (up to 3 years) and also the immediate adoption to change arising due to fluctuations in operating levels of the firm.

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