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124 Corporate Finance BRILLIANT’S

assets - current liabilities. It shows how much _| kmV {H$`m OmVm h¡& `h Xem©Vm h¡ {H$ H$ånZr Ho$ nmg
liquid assets a company has to build its AnZm {~OZog H$aZo Ho$ {bE {H$VZr {b{ŠdS> AgoQ²>g h¡&
business. It is a most fundamental measure of `h {H$gr H$ånZr H$s \$m`ZopÝe`b ñQ´>|W H$m g~go AmYma^yV
a company’s financial strength. If a company
possesses a significant value of liquid assets, it _mn h¡& `{X {H$gr H$ånZr Ho$ nmg {cpŠdS> AgoQ²>g H$s
can easily fund its day-to-day business n`m©á _mÌm h¡ Vmo dh AnZo {~OZog Ho$ X¡{ZH$ H$m`m] Ho$ {bE
obligations. Maintaining adequate working AmgmZr go \$ÊS> CnbãY H$am gH$Vr h¡& n`m©á d{Hª$J
capital is not just important in the short-term. H¡${nQ>c H$mo _oÝQ>oZ H$aZm Ho$dc em°Q>©-Q>_© _| hr _hËdnyU©
Sufficient liquidity has to be maintained in order
Zht h¡& bm§J-Q>_© _| {~OZog Ho$ gdm©Bdb Ho$ {bE n`m©ßV
to ensure the survival of the business in the {b{Šd{S>Q>r _oÝQ>oZ H$aZm Amdí`H$ hmoVm h¡& `{X g_` na
long-term as well. Even a profitable business
XoZXm[a`m± MwH$mZo H$s H¡$e j_Vm Z hmo Vmo EH$ àm°{\$Q>o~b
may fail if it does not have adequate cash flow
to meet its liabilities when they fall due. {~OZog ^r Ag\$b hmo gH$Vm h¡Ÿ&
In simple terms, working capital refers to gab eãXm| _|, d{Hª$J H¡${nQ>c dh H¡$e Ed§ H¡$e Ho$
the cash and cash equivalents which a g_mZ AÝ` gån{Îm h¡ Omo H$ånZr Ho$ X¡{ZH$ {~OZog
company requires in order to finance its day- Am°naoeÝg Ho$ g§MmbZ _| Amdí`H$ hmoVr h¡ `m AÝ` eãXm|
to-day business operations or in other words,
it refers to the amount of capital which is _|, `h H¡${nQ>c H$s dh _mÌm h¡ Omo Am°J}ZmBOoeZ Ho$ nmg
readily available in an organization. Vwa§V CnbãY hmoVm h¡&
The term 'working capital' is used in two "d{Hª$J H¡${nQ>c" eãX H$m Cn`moJ Xmo àH$ma go
different ways: hmoVm h¡:
1. Gross Working Capital (or Total 1. J«m°g d{Hª$J H¡${nQ>c (`m Q>moQ>c d{Hª$J H¡${nQ>c)…
Working Capital): The term Gross working J«m°g d{Hª$J H¡${nQ>b \$_© Ho$ g^r H$aÝQ> AgoQ²>g _| {H$E
capital refers to the firm's investment in all the JE Hw$b BÝdoñQ>_|Q> H$mo H$hVo h¢&" AÝ` eãXm| _|, g_ñV
current assets taken together. In other words,
H$aÝQ> AgoQ²>g _| {H$E JE Hw$b BÝdoñQ>_|Q> H$mo EH$ gmW b|
the total investment in all current assets is
called gross working capital. Vmo `h J«m°g d{Hª$J H¡${nQ>c hmoJr&
Current assets are those which are H$aÝQ> AgoQ²>g do h¢ Omo Am°J}ZmBOoeZ _| X¡{ZH$ H$m`m]
required to meet day-to-day operations of the H$mo gånÞ H$aZo Ho$ H$m_ AmVr h¢ Am¡a {OÝh| EH$ df© H$s
organization and they are convertible into cash Ad{Y _| `m EH$ Am°naoqQ>J gm`H$b Ho$ ^rVa H¡$e _|
within a period of one year or within an n[ad{V©V {H$`m Om gH$Vm h¡& BZ AgoQ²>g _| H¡$e, ~¢H$,
operating cycle. Current assets include cash, S>oãQ²>a, {~ëg [a{gdo~c, ñQ>m°H$ Am¡a em°Q>©-Q>_© {gŠ`y[aQ>rO
bank, debtors, bills receivable, stock and short
term securities. For example, if a firm has bank gpå_{bV h¢& CXmhaU Ho$ {cE, `{X {H$gr \$_© Ho$ nmg
balance ` 1,00,000, debtors ` 50,000 and stock ` 1,00,000 H$m ~¢H$ ~¡b|g, ` 50,000 H$s H«o${S>Q>
` 30,000, then the gross working capital of the boZm eof, Am¡a ` 30,000 H$m ñQ>m°H$ eof h¡ Vmo BgH$s
firm is ` 1,80,000. J«m°g d{Hª$J H¡${nQ>c ` 1,80,000 hmoJr&
2. Net Working Capital: It refers to the 2. ZoQ> d{Hª$J H¡${nQ>c… `h H$aÝQ> AgoQ²>g Ed§
difference between current assets and current
H$aÝQ> cm`{~{c{Q>O H$m A§Va hmoVm h¡& H$aÝQ> cm`{~{c{Q>O
liabilities. Current liabilities are those claims
do cm`{~{c{Q>O h¢ Omo EH$ AH$mCpÝQ>¨J B©`a _| MwH$mZo Ho$
which are expected to mature for payment