Working capital is the money available to meet your current, short-term obligations. To make sure your working capital works for you, you'll need to calculate your current situation, project/design your future needs and consider ways to make sure you always have enough cash.
Working capital is an index of the short-term financial position that measures the overall efficiency of an organization. It is calculated by subtracting current liabilities from current assets and listed directly in its balance sheet.
Current assets mean the money kept in a bank and assets that can be converted into cash in case if any situation arises. Current liabilities represent debt that an individual will pay within the prescribed year. Finally, working capital is the money left after subtracting liabilities from an individual's money in the bank.
Current assets consist of cash, accounts receivable, and inventory. Current liabilities include wages, taxes, interest owed.
In broader terms, working capital is also used to measure the company’s fiscal health. If there is a larger difference between what a company owns and what an individual owns for the short-term, the business will be healthier.
The main purpose of using working capital is to fund current expenses like purchasing stock, salary, electricity expenses etc..,. It means to meet the short-term obligation, and continue to have sufficient working capital.
Working capital is also used to fuel business growth without incurring debt. If the company does not want to take a loan, they can qualify easily for loans or other forms of credit because of their positive working capital.
Customers can avail LC/BG/Capex term loan/Export Credit finance like pre shipment & post shipment finance & Import Credit facility in working capital facility.
