What is a Working Capital?Working capital is the fuel for running businesses the companies. It may be stated that maintaining an adjusted amount of working capital is the first and foremost aim of business organizations. While having too much working capital is bad, an inadequate amount of working capital can create problems in running the businesses smoothly as well.While having too much working capital is bad, having too low working capital is also a sign of weakness of a business firm. In order to keep the business running on a smooth path, the firm must maintain a healthy amount of ... Read More

What is a Working Capital?Both temporary and permanent working capital are necessary to run a business smoothly. Working capital acts as fuel in running business activities. While temporary working capital provides the expenses to meet general day-to-day needs, permanent working capital helps businesses meet larger demands in the future.As working capital is an unavoidable part of businesses, one may think that having working capital in excess may be a good option for the businesses. Unfortunately, this is not true. While having low working capital is deteriorating, having working capital in excess also has its own perils.Risks of Having Excessive Working ... Read More

What is an Operating Cycle?An operating cycle is the time needed to convert sales into cash after converting the resources into inventories. In fact, no company generates sales after the production of a good instantly. It has to wait for some time to sell the goods in the market after purchasing raw materials and other necessary items and producing the finished goods.The operating cycle of a manufacturing company has the following three phases −Acquisition of resources − This is the beginning phase where raw materials used for the finished products are resourced and collected.Manufacturing of the product − This is ... Read More

The major differences between Temporary and Permanent working capital are as follows −Based on NeedsTemporary and permanent working capital differ in terms of their need. The permanent working capital is a fixed amount of working capital that is kept fixed for the long-term needs of the business. The temporary working capital, on the other hand, is meant for day-to-day, short-term expenses.Temporary working capital is an additional amount of capital kept reserved above the permanent working capital. Therefore, permanent working capital is a large amount of capital while temporary capital is a smaller amount of capital.Based on UsageTemporary working capital is ... Read More

The operating cycle is the time required for converting sales into cash after converting resources into inventories. The operating cycle of a manufacturing firm is different from non-manufacturing companies because manufacturing companies need to resource raw materials and convert them into finished goods. While non-manufacturing companies can go directly from the acquisition of services or products to sales, manufacturing companies need to consider the time required for manufacturing the goods. So, generally, the operating cycle of a company is more prolonged than non-manufacturing companies.The operating cycle of a manufacturing company is made up of three phases −Acquisition of Raw materials ... Read More

What is Sustainable Growth?Sustainable growth is a percentage measure of yearly growth in sales that is in sync with the firm’s financial policies meaning no fresh equity is issued. For a multiproduct company, sustainable growth can be calculated by the company’s growth at the corporate level in terms of growth of assets. Usually, companies set their target growth in terms of sales. To grow sales, the company needs to invest funds in assets. This investment can either be sourced from external sources or provided by the internal resources of a company.Therefore, the assets of a company will grow by an ... Read More

An operating cycle is the time needed to convert sales into cash after converting the resources into inventories. In fact, no company generates sales after the production of a good instantly. It has to wait for some time to sell the goods in the market after purchasing raw materials and other necessary items and producing the finished goods.An operating cycle is divided into two types as follows −Gross Operating Cycle (GOC).Net Operating Cycle (NOC).Here’s more about GOC and NOC and their differences.Gross Operating CycleThe gross operating cycle of a firm can be expressed as the Inventory conversion period (ICP) plus ... Read More

What is Operating Cycle?All companies need working capital to run its day-to-day activities. There is no business that does not need working capital. In order to reach its financial goals, however, different companies need different amounts of working capital. An operating cycle is the time needed to convert sales into cash after converting the resources into inventories. In fact, no company generates sales after the production of a good instantly. It has to wait for some time to sell the goods in the market after purchasing raw materials and other necessary items and producing the finished goods.To understand about operating ... Read More

Definition: Net Concept of Working CapitalThe net concept of working capital is a qualitative concept that focuses on the liquidity of funds that must be maintained in order to meet short-term liabilities. It is obvious that a company would need enough funds to meet the day-to-day needs of its operation, so that it can survive and meet its long-term goals. The net concept of working capital management should be applied to organizations individually as there is no precise measure to which the net concept of working capital management should be applied to a company.Like the gross concept of working capital ... Read More

There are mainly two types of working capital–gross working capital and net working capital. Although many people tend to use the two alternatively, there are some stark differences between the concepts of working capital. Therefore, it is important to know the differences so that no confusion arises while considering the two concepts of working capital.Following are the differences between Gross Working Capital and Net Working Capital −Investment in current assets vs. liabilities to be paidGross working capital is the investment of a company in its current assets. Current assets are the items that can be converted to cash within a ... Read More