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    Components of Working Capital

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    Diwakar Singh
    The key components of working capital are cash, accounts receivable, inventory, and marketable securities. Cash is the most liquid asset and is needed to fund day-to-day operations. Inventory acts as a buffer between production stages and production/distribution. Accounts receivable represents amounts owed to the company from sales. Marketable securities can be quickly bought and sold and have maturity periods of less than one year. Working capital refers to the funds required to finance short-term assets and the conversion of raw materials into finished goods that are sold. The key current assets and liabilities that impact working capital are accounts receivable, inventory, and accounts payable.

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    Components of Working Capital

    Uploaded by

    Diwakar Singh
    2K views4 pages
    The key components of working capital are cash, accounts receivable, inventory, and marketable securities. Cash is the most liquid asset and is needed to fund day-to-day operations. Inventory acts as a buffer between production stages and production/distribution. Accounts receivable represents amounts owed to the company from sales. Marketable securities can be quickly bought and sold and have maturity periods of less than one year. Working capital refers to the funds required to finance short-term assets and the conversion of raw materials into finished goods that are sold. The key current assets and liabilities that impact working capital are accounts receivable, inventory, and accounts payable.

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    The key components of working capital are cash, accounts receivable, inventory, and marketable securities. Cash is the most liquid asset and is needed to fund day-to-day operations. Inventory acts as a buffer between production stages and production/distribution. Accounts receivable represents amounts owed to the company from sales. Marketable securities can be quickly bought and sold and have maturity periods of less than one year. Working capital refers to the funds required to finance short-term assets and the conversion of raw materials into finished goods that are sold. The key current assets and liabilities that impact working capital are accounts receivable, inventory, and accounts payable.

    Copyright:

    © All Rights Reserved
    Download as DOCX, PDF, TXT or read online from Scribd
    Download as docx, pdf, or txt
    2K views4 pages

    Components of Working Capital

    Uploaded by

    Diwakar Singh
    The key components of working capital are cash, accounts receivable, inventory, and marketable securities. Cash is the most liquid asset and is needed to fund day-to-day operations. Inventory acts as a buffer between production stages and production/distribution. Accounts receivable represents amounts owed to the company from sales. Marketable securities can be quickly bought and sold and have maturity periods of less than one year. Working capital refers to the funds required to finance short-term assets and the conversion of raw materials into finished goods that are sold. The key current assets and liabilities that impact working capital are accounts receivable, inventory, and accounts payable.

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    Components of Working Capital

    The main components working capital are cash, accounts receivable, inventory, marketable

    securities, trade credits and loans from Life Insurances etc.

    Cash is the most liquid and important component of working capital. It is necessary for a

    business to maintain some amount of cash in hand at Life Insurance the even if the other

    current assets are substantial.

    Inventory is required for smooth running of the activities of a company. It acts as buffer

    between various stages of production as well as between production and distribution.

    Inventory is of different types and includes raw material, work-in-progress and finished

    goods.

    Accounts Receivable constitutes a significant part of the current assets of a company. It

    represents amounts that a company is eligible to receive due to the sale of its goods or

    services. The credit period time allowed before a customer can pay for the good/service,

    and discounts are decided by credit policy of the company.

    Marketable securities include commercial papers that companies issue, Life Insuranceers

    acceptance letters, treasury bills etc. They can be bought and sold quickly at a reasonable

    price. Usually marketable securities tend to have maturity periods of less than a year which

    makes them attractive as an investment option for the company.


    Working Capital refers to the cash a business requires for day-to-day operations, or more

    specifically, for financing the conversion of raw material into finished goods, which the

    company sells for payment. Among the most important items of Working Capital are levels of

    inventory, accounts receivable and accounts payable. Analysts look at these items for signs of

    a companys efficiency and financial strength.

    Funds are also needed for short-term purposes, for the purpose of raw materials, payment of

    wages and other day-to-day expenses, etc. These funds are known as Working Capital. In

    simple words, Working Capital refers to that part of the firms capital, which is required for

    financing short- term or current assets such as cash, marketable securities, debtors and

    inventories.

    Working Capital is a valuation metric that is calculated as current assets minus current

    liabilities. Working capital is also known as Operating Capitals.

    Current Assets and Current Liabilities:

    Include three accounts, which are of special importance.These accounts represent the areas of

    the business where managers have the most direct impact:

    Accounts receivable (current assets)

    Inventory (current assets), and

    Account payable (current liabilities)

    In addition, the current (payable within 12 months) portion of debts is critical, because it

    represents a shorts- term claims to current assets. Common types of short-term debt are bank

    loan and line of credit.


    Current Assets:

    Current Assets are those assets which are convertible into cash within a period of one year

    and those which are required to meet the day to day operations of the business.

    Constituents of Current Assets: -

    Cash in Hand and Bank Balances

    Bill Receivables

    Sundry Debtors (Less provision for bad debts)

    Short terms Loans & Advances

    Inventories of stocks

    Raw Material

    Work in Process

    Stores and Spares

    Finished Goods

    Coal & Fuel

    Temporary Investments of Surplus Funds

    Prepaid Expenses

    Accrued Income

    Current Asset Cycle

    Finished

    Good
    Work in Progress
    Accounts
    Receivable

    Wages, Salaries,

    Factory Overheads
    Raw Material

    Cash
    Current Liabilities:
    Suppliers

    Current Liabilities are those claims of outsiders which are expected to mature for payment

    within the accounting year.

    Constituents of Current Liabilities

    Bills Payables

    Sundry Creditors or Accounts Payable

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