ChatterBank0 min ago
what is working capital?
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not a definition but i need an example to explain what exactly WOKING CAPITAL mean?
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In simple terms, there will normally be a delay between the money you spend and the money you earn.!
Working capital is the money you need to finance that delay. In a shop for example, you need to buy stock, and pay wages, and only then does the money start to come in. If you extend the shop, then you will need to invest in more stock, and maybe more staff, before the increased income starts to appear. You can only ever get that money back if you sell the business, or close it down and sell everything off. Although perhaps you could recover some of it, for example, by renegotiating your terms of payment with your suppliers.
Working capital is the money you need to finance that delay. In a shop for example, you need to buy stock, and pay wages, and only then does the money start to come in. If you extend the shop, then you will need to invest in more stock, and maybe more staff, before the increased income starts to appear. You can only ever get that money back if you sell the business, or close it down and sell everything off. Although perhaps you could recover some of it, for example, by renegotiating your terms of payment with your suppliers.
Working capital is defined as current assets minus current liabilities; it tells the financial statement user how much cash is tied up in the business through items such as receivables and inventories and also how much cash is going to be needed to pay off short-term obligations in the next 12 months.
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