Finance

The Definition of Working Capital?

 The Definition of Working Capital?

Many times it has been seen that many companies start but after some time suddenly they also stop. This problem is widespread in the start-up sector. A start-up opened last year, the product of the start-up was a mobile app that allows diabetic patients to check their sugar labels on their mobile.

People liked this product and people started using this product. The media felt that there was a lot of potential in this start-up. A lot of news about this start-up started coming from the media. A lot of stories were made by journalists.

Based on the news coming in the media, the investor felt that money can be invested in these start-ups. People also invested money. But, in the 15th month itself, the company suddenly closed and the one who was the founder of the company started working in some other company. Why did this happen?

It did not happen that seeing the story of this start-up, a big company bought its owner by paying more money. It was also not that the company’s product was not running and the company was running at a loss. Let’s get to the bottom of the company closure.

If you go to the bottom of this story, you will find that this company ran fine for 10 months but problems started coming from the eleventh month itself. There was a problem in meeting the daily expenses in the company. Despite the company having sufficient funds, the employees were not getting the salary on time.

When the employees did not start getting the salary on time, the employees started leaving the company. The daily expenses incurred in the start-up such as bills for water, electricity, snacks, etc. were also not being paid. One day the company suddenly closed and no one even came to know about it.

Such a situation happens with many MSME traders. A businessman has to face such a situation when he does not have or lack understanding of finance i.e. financial management.

If the start-up founder had understood the working capital, then this situation would not have come. The bottom line is that the working capital of any business determines whether the business will proceed or close.

What is working capital?

If we put it in the line – the money which is used to meet the daily needs of the business, it is called working capital. If we understand it by definition, then the amount left between the total available money and liabilities in the business is the working capital.

The working capital is used by the business for any necessary equipment, rent of the business place, for paying internet bill, water bill and salary of daily employees, etc.

It is very important to clarify here that the business which does not have the amount of working capital, is advised to keep the required amount in the working capital fund. If there is a budget problem due to any reason, then they can take advantage of the working capital loan facility.

Be it the business of manufacturing sector, service sector, it is mandatory for everyone to have working capital of business through a working capital loan.

working capital formula

Working Capital = Current Assets – Current Liabilities

Let us understand it in a more simple way: Suppose, you have current assets of 10,00,000 and current liabilities i.e. outstanding 8,00,000 then in this case you have Rs 2,00,000 working capital in Hindi working capital.

Working Capital in Hindi Working capital is the measure of the amount of cash you have left after you account for your short-term liabilities. There are two types of working capital. Positive and negative working capital means positive and negative working capital.

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