what is working capital? and explain in brief the various sources of w

QUESTION

what is working capital? and explain in brief the various sources of working capital?
Solution: Working capital is defined as a financial metric that representsthe operating liquiditywhich is available to an organization, business, or other government entity. It is a measure of both a companys short term financial position and its efficiency. It is calculated as the given formula: Working capital = Current assets Current liabilities Also, the working capital ratio = Current Assets/Current Liabilities This ratio indicates that whether a company has adequate short term assets to shield its short term debt during the accounting period. If this ratio is < 1, then the company has negative working capital. An ideal working capital ratio lies between 1.2 to 2.0. 1. Installment credit It is one of the forms of the short term finance in which we pay for various goods and services for a period through the principal payment and the interest paid in the regular payments. 2 .Invoice Discounting It is a form of financing based on asset that qualifies a business to announce its cash stuckin the invoice and allows a client to recall the control of the management of its various debtors. 3. Banks overdraft It is issued when a person is capable of spending moreamountthan what is really available in their bank accountsand it is limited in nature. 4. Commercial papers Itis... efined as an unsecured promissory notewhichis a security in the money-market and is issued by thelarge corporations tohavemoney to encountertheirobligations of short term debtand is only supported by an issuing bank and not by any collateral. 5. Letter of Credit It is a document which is issued by a financial institution to the seller of goods/ services that states that the person who is issuing will have to pay the seller for all the goods/services that the seller will deliver to the third-party buyer. The long term sources of working capital are as follows: 1. Equity capital It is the portion of the companys income which is issued by the trading of stocks of the shareholders in exchange of cash. 2. Loans It is defined debt obligation that is entailed toredistribute the financial assets over the accounting period between the investor and the borrower.   ANSWER: CLICK REQUEST FOR  AN EXPERT SOLUTION