WORKING CAPITAL Meaning and
Definition
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Working capital is a financial metric that refers to the amount of liquid assets a company has available to fund its daily operations and cover its short-term liabilities. It represents the difference between a business's current assets (including cash, accounts receivable, inventory, and other short-term assets) and its current liabilities (such as accounts payable, short-term debt, and other obligations due within a year).
This metric is crucial for assessing a company's ability to meet its short-term financial obligations and maintain its operational efficiency. By having adequate working capital, a business can ensure smooth operations, pay its suppliers, cover its wages and overhead costs, and invest in growth opportunities. Conversely, insufficient working capital may lead to a company's inability to meet its obligations, face liquidity issues, and potentially risk insolvency.
Working capital management involves monitoring and optimizing the cash conversion cycle, which is the time it takes to convert the company's investments in inventory and other resources into cash flows. Businesses need to strike a balance between holding excess working capital that may not earn a return and maintaining enough liquid assets to sustain their operations.
Improving working capital can be achieved through various strategies, such as streamlining inventory management, negotiating better payment terms with suppliers, accelerating accounts receivable collection, and actively managing short-term debt. Efficient working capital management is vital for a company's financial health, as it ensures sufficient liquidity and the ability to seize opportunities without undue risk.
Common Misspellings for WORKING CAPITAL
- qorking capital
- aorking capital
- sorking capital
- eorking capital
- 3orking capital
- 2orking capital
- wirking capital
- wkrking capital
- wlrking capital
- wprking capital
- w0rking capital
- w9rking capital
- woeking capital
- wodking capital
- wofking capital
- wotking capital
- wo5king capital
- wo4king capital
- worjing capital
- working capotal
Etymology of WORKING CAPITAL
The term "working capital" derives from two words: "working" and "capital".
The word "working" is derived from the Old English word "weorc" which means "action" or "task" and the Middle English word "workinge" which means "active, efficient, or operative". In the context of working capital, it refers to the capital or funds that are actively used or employed in the day-to-day operations or functioning of a business.
The word "capital" comes from the Latin word "caput" which means "head" or "chief". In the context of finance, it refers to the total amount of money or assets owned or invested in a business or enterprise.
Therefore, the term "working capital" refers to the funds or capital that is utilized for ongoing operations, such as purchasing inventory, paying salaries, and meeting short-term financial obligations, in order to keep a business functioning efficiently and effectively.
Similar spelling words for WORKING CAPITAL
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