Working Capital - Financial Planning and Administration, Business Economics & Finance Video Lecture | Business Economics & Finance - B Com

[Music]
hello friends in this lecture we shall
discuss the concept of working capital
first of all what are different
components of working capital that for
that matter what is working capital
friends working capital means the amount
of grunter assets which a business firm
has to maintain for its day-to-day
operations all business entities all
business firms may be companies may be
partnerships may be proprietorships when
they have to undertake day-to-day
operations they are required to maintain
certain current assets and these current
assets are known as working capital let
us see this so here these are stocks in
a retail shop so these stocks are grunt
assets and this is working capital of
this retail shop similarly let us see
this consumer durable goods distributor
or seller so far this distributor for
this is seller for this retailer these
consumer electronical do durables these
are current assets has this is working
capital for this firm for this
organization similarly for this person
these vegetables which are kept for sale
this is current asset and this is
working capital
so working capital means the amount of
current FX which a business firm has to
maintain for its day-to-day operations
now what is meant by current SS what
type of SS are included in current
assets now this is capped at racks those
rags are not granted SX
but this is talked is a current asset so
what is feature of a current asset think
current the SX are those assets which
get converted into cash within a period
of one year or one operating cycle so
there is operating cycle of working
capital whatever assets are maintained
and get converted into cash during that
operating cycle maximum within one year
so those assets are called current SX
and the current assets are called
working capital now let us see the
components of current assets one
component is cash so all these people
they maintain some amount of cash for
making urgent payments they also open
account with a bank and maintain some
balance in those current accounts and if
they have some shorter term money they
want to interest on that they want to
earn interest on that so they place
certain funds into bank fdr's so cash is
a current asset bank balance including
bank FDR of any period that also is a
current asset then stocks and
inventories these are also current
assets these stocks they include a raw
material these stocks may include stock
in process the concept of stock in
process is relevant in case of
manufacturing so this is a trading this
is reading this is also trading in
their caves this is talking process is
not relevant it is irrelevant for
manufacturing or processing enterprises
then finish goods so here they are
maintaining finish goods
outstanding trade debtors or book decks
representing credit sales for example
these consumer durable retailers they
sell these items on credit when they
sell these items on credit that amount
which is represented by credit sales is
called trade debtors or book addiction
but remember these trade debtors or book
debts they should not be outstanding for
a period of more than one year now
prepaid expenses these organization make
certain payments in advance so that is
prepaid expenses similarly for
purchasing these stocks sometimes they
have to send some advance to the
suppliers so that advance to the
suppliers is also part of current a
section and finally there could be other
items also those items which will get
converted into cash within one operating
cycle or maximum one year so those will
also be included in current asset and
the current asset means the working
capital
so amount of current sx is called
working capital other aspects relating
to working capital we shall discuss in
next lecture well friends I am sure the
contents of this video will benefit you
thank you for watching the video