INTRODUCTION OF WORKING CAPITAL
The net working capital of business is its current assets less its current liabilities.
Current Assets include:
• Stock of Raw Material
• Work in Progress
• Finished Goods
• Trade Debtors
• Prepayments
• Cash Balances
Current Liabilities include:
• Trade Creditors
• Accruals
• Taxation Payable
• Dividends Payable
• Short term Loans
Every business needs adequate liquid resources in order to maintain day to day cash flows. It needs enough cash to by wages and salaries as they fall due and to pay creditors if it is to keep its workforce and ensure its supplies. Maintaining adequate working capital; is not just important in the short term.
Sufficient liquidity must be maintained in order to ensure the survival of business in the long term as well. Even a profitable business may fail if it does not have adequate cash flows to meet its liabilities as tyhey fall a due. Therefore when business make investment decisions they must not only consider the financial outlay involved with acquiring the new machine or the new building etc, but must also take account of the additional current assets that are usually involved with any expansion of activity .
Increase production tends to engender a need to hold additional stocks of raw material & work in progress.
Increased sales usually mean that the level of debtor will increase. A general increase in the firm’s scales of operation tends to imply a need for greater level of cash.
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The net working capital of business is its current assets less its current liabilities.
Current Assets include:
• Stock of Raw Material
• Work in Progress
• Finished Goods
• Trade Debtors
• Prepayments
• Cash Balances
Current Liabilities include:
• Trade Creditors
• Accruals
• Taxation Payable
• Dividends Payable
• Short term Loans
Every business needs adequate liquid resources in order to maintain day to day cash flows. It needs enough cash to by wages and salaries as they fall due and to pay creditors if it is to keep its workforce and ensure its supplies. Maintaining adequate working capital; is not just important in the short term.
Sufficient liquidity must be maintained in order to ensure the survival of business in the long term as well. Even a profitable business may fail if it does not have adequate cash flows to meet its liabilities as tyhey fall a due. Therefore when business make investment decisions they must not only consider the financial outlay involved with acquiring the new machine or the new building etc, but must also take account of the additional current assets that are usually involved with any expansion of activity .
Increase production tends to engender a need to hold additional stocks of raw material & work in progress.
Increased sales usually mean that the level of debtor will increase. A general increase in the firm’s scales of operation tends to imply a need for greater level of cash.
Download Full Project Report
1 comments:
Not everything that means less money is always good in time of crisis. Everyone wants to cut theit budgets but investments that are made in a difficult time are always pay of.
Neil Advani
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