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Working capital means current assets Mead, Malott and Field.

Any acquisition of funds which the current asset increases working capital, for, they
are one and the same. J.S.mill
Explain Working Capital
Working capital is the life blood of business. Funds needed for the purchase of raw
materials, payment of wages and other day-to-day expenses are known as working
capital. It is part of the firms capital, which is being used for financing short-term
operations. Hence, it may also be termed as Circulating Capital or Short-Term
capital.
Financial troubles and issues arise only when this entity called working capital is
not properly managed. Every successful company will hire a financial manger to
deal with issues relating to finance while the CEO can look into matters relating to
promotion of the product or service and the position of the company in the market.
The Sales Turnover or Sales Volume is the key issue you have to look into to gauge
whether you have sufficient working capital to manage that big a volume for that
particular period. You have to rotate your funds wisely keeping in mind the credit
policies your company offers and the credits you may enjoy with your supplier, bank
interest for the short-term loans etc.
Concept of Working Capital
Working capital implies excess of current assets over current liabilities. Funds
invested in current assets is known as Gross Working Capital. The difference
between current assets and current liabilities is known as Net Working Capital.
What are the two types of working capital?
1. Permanent or fixed: It is the minimum amount of current assets required for
conducting the business operation. This capital will remain permanent in
current assets and should be financed out of long-term funds. The amount
varies from year to year, depending upon the growth of a company.
2. Temporary or Variable: It is the amount of additional current assets required
for a short period. It is needed to meet the seasonal demands at different
times during a year. The capital can be temporary and should be financed out
of short-term funds. The working capital starts decreasing when the peak
season is over.
Various Factors Influencing Working Capital:

Nature of business: Service oriented concerns like electricity; water supplies


need limited working capital while a manufacturing concern requires
sufficient working capital, since they have to maintain stock and debtors.

Credit Policies: A company which allows credit to its customers shall need
more amount of working capital. A company enjoying credit facilities from its
suppliers will need lower amount of working capital.
Manufacturing Process: Conversion of raw materials into finished goods is
called manufacturing or production. Longer the process, higher the
requirement of working capital.
Rapidity of turnover: High rate of turnover requires low amount and lower and
slow moving stocks need a larger amount of working capital. Say, jewelry
shops have to maintain different types of designs calling for high working
capital. Fast moving goods like grocery requires low working capital.
Business cycle: Changes in economy has a say over the requirement of
working capital. When a business is prosperous, it requires huge amount of
capital; also during depression huge amount is needed for unsold stock and
uncollected debts.
Seasonal variation: Industries which are manufacturing and selling goods
seasonally require large amount of working capital.
Fluctuation of supply: Firms have to maintain large reserves of raw material in
stores, to avoid uninterrupted production which needs large amount of
working capital.
Dividend policy: If a conservative dividend policy is followed by the
management, the need for working capital can be met with the retained
earnings, it consequently drains off large amounts from working capital pool.