Write the meaning, Importance and Determinants of Working Capital: Fundamentals of Financial Management: BBS Second Year Note
Meaning of Working Capital: : Fundamentals of Financial Management: BBS Second Year Note
Working capital refers to investment in raw materials, finished goods, cash, bank balances, etc., required for running a business organization.
It can also be understood as a gross concept and a net concept. The gross concept refers to the sum of the organization’s movable assets, while the net concept is the difference between movable assets and movable liabilities.
Importance of working capital:: Fundamentals of Financial Management: BBS Second Year Note
Basis for successful operation of the organization
Financing cost and risk can be reduced
To demonstrate good credit standing
To balance in current assets
To manage small business finances
To manage investments
Determinants of working capital: Fundamentals of Financial Management: BBS Second Year Note
Businesses that are affected by the weather will have an impact on their working capital. In some seasons more capital is required and in some season less active capital is required.
2. Size of the business
A small business requires less working capital, while a large business requires a lot of capital.
3. Growth rate of the organization
If the organization is in a state of growth, it needs less capital, and if the production and sales of the organization are in a low state, a lot of capital is needed.
4. Nature of organization
Organizations involved in production and manufacturing require a lot of capital, but organizations involved in trade require less working capital.
5. Changes in technology
Using old technology and equipment increases working capital, while using new technology reduces working capital.
6. Production policy
Producing more of the same type of goods decreases the working capital, while producing different types of goods increases the working capital.
Meaning of Working Capital, its importance and determinants.
: Fundamentals of Financial Management: BBS Second Year Note
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