What is Working Capital ?

Excess of current assets of an organisation over its current liabilities is known as Working Capital. Simply put, it is the finance available to an organisation for its day-to-day business operations. It can also be defined as that part of total capital, which is required for holding current assets. Current Assets and Current Liabilities of an organisation determine its working capital.

Current Assets are the assets, which can be converted into cash and cash equivalents within a period of one year. Investment in these assets helps an organisation in its day-to-day operations. They also provide liquidity to the business but do not contribute much to its profits. Therefore, an organisation has to maintain a balance between liquidity and profitability. For example, cash in hand, debtors, bills receivables, etc.

Current Liabilities are the liabilities of a firm which are payable within a period of one year. For example, creditors, bills payable, advance received, outstanding expenses, etc.