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A successful commercial organization needs two types of assets, viz., fixed assets and
current assets. Fixed assets include—land, building, plant, machinery, furniture, etc. These are
not only purchased for the purpose of sale, but also for the purpose of earning profit for
many years. Current assets include, raw materials, work-in-progress, finished goods, sundry
debtors, bills receivables, cash, bank balance, etc. These are purchased for the purpose of
production and sales, like raw material into semi finished products, semi finished products into
finished products, finished products into debtors and debtors transferred into cash or bills receivables.
The fixed assets are used in increasing production of an organization and the
current assets are used in using the fixed assets for day to day working. The management of
this working capital is known as working capital management. The term working capital
refers to the amount of capital which is readily available to an organization. Management
of working capital deals with the problems that arise in managing the current assets, the
current liabilities and the interrelationship that exists between them. It should neither be
inadequate nor excessive.
Working capital is an important part of finance having a decisive influence on
the liquidity, which is regarded as the lifeblood of a
business. It plays a pivotal role in keeping the wheels
of a business moving. Working capital management has always been
a fascinating subject from the academic point of view and it must be admitted that in
a real world situation, the efficiency with which working capital is managed in
an organization, is of great significance for its overall well being. |
