Here you can find the introduction, meaning and definition of working capital.
Introduction
Fund is needed for every business organization either for its establishment or to run day to day business activities. Without sufficient fund neither the business can establish, run, exist and expand its business activities. The fund is required for long-term purpose like to expand business or for short-term purpose to run day to day business activities smoothly. Here the fund needed to manage the day to day business activities is termed as working capital.
Meaning
In a simple word, we can say that working capital is the fund needed to manage the day to day business activities. But this is not the exact meaning of working capital. In order to understand the meaning of working capital, you have to understand its gross and net concept.
According to the gross concept of working capital, working capital refers to the fund invested in total current assets of the business organization. This concept says that the amount which you have invested in your current assets is your working capital. This concept is followed by the big business organization who focuses on the optimal investment. Here optimal investment means neither more nor less.
On the other hand, net concept of working capital defines working capital as a difference between total current assets and total current liabilities. It says that working capital is net current assets i.e. (Total Current Assets – Total Current Liabilities). This concept is followed by the small business organization who focuses mainly on the liquidity of the business organization.
Definition of Working Capital
According to Amit Chaudhary, “Working Capital is the total amount of fund required by the business concern to manage day to day operation without any interruption.”
According to AMCTHEBLOGGER, “Working capital can be defined as the total amount of funds invested in the total current assets of the business firm.”