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Summary: The Importance Of Working Capital

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2.0 Discuss the used of the working capital & importance of working capital in a company.
Working capital is the amount of current asset minus the amount of current liabilities at the particular time. Working Capital amount able to find in the company’s balance sheet. Its plays a significant role in every company. It able to cause a shortage of cash if the current assets are not turn into cash. For instant, company need to sell their current assets that under the form inventory (Averkamp, n.d.).
Company should keep the eye on the number of credit receivable, because credit receivable will lead to unusual amount of working capital when it comes to payroll on Friday. The financial ratio that are similar to the working capital are quick ratio, …show more content…

In this situation, working capital management have played an important role to resolve the financial insolvency. Working capital management is necessary for company to maintain the adequate balance of company’s current liability and current assets (Hawley, 2015).
There are various types of working capital, such as permanent working capital, positive working capital, negative working capital, reserve working capital, seasonal working capital, regular working capital, temporary working capital, gross & net working capital and special working capital (Money Matters, …show more content…

It has referred by Tandon committee towards this type of working capital as a hard core working capital. Permanent working capital representing the base of investment which from all types of current resource at all time to carry on business. Current asset value will be increase or decrease over some period of time. However, company initiated to operate business effectively must necessary to have a minimum level of current assets at every single time. There are some features of permanent working capital. The gross amount of permanent working capital will be remaining constant but there will be some different occurred in the component of current asset. Besides, there is a positive relationship between value of permanent working capital and size of business. Moreover, permanent working capital required long term source of funding (Money Matters,

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