Working Capital (WC) is essential for the smooth functioning of all the day-to-day activities of a business. It primarily consists of two concepts, Gross Working Capital and Net Working Capital. Before moving on to the two concepts in detail, let us know about WC elaborately. What do you mean by WC? It is that part of a business’ capital which meets daily cash requirements. It includes cash-in-hand, bills receivable, bills payable, inventory, short-term investments, marketable securities, etc. As mentioned, Working Capital can be further divided it into Working Capital and net working capital. Gross Working Capital (GWC): It is a broader term that covers all the current assets of a business. You can say the total amount of current assets without counting the current liabilities is called GWC. However, this cannot give an accurate picture while calculating the financial position of a business. It is because GWC is the total of available current assets without any deductions for any liabilities. The company may have to meet a lot of current expenses before arriving at the actual assets that will stay with it. For example, you have borrowed an amount of Rs. 50,000. It increases the current asset of the company. Moreover, it is also a current liability of the company which needs to be paid in the short-term. Thus, the gross calculation of working capital is not an accurate reflection. Taking a working capital loan is a good way of introducing fresh capital. Financial institutions like Bajaj Finserv offer business loan designed explicitly for WC requirements of business apart from meeting other needs. You can use this loan to fill up business loan requirements. It will reinvigorate your company to a stable financial position. So, now with the concept of net working capital cleared, take your business towards growth.
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AuthorAman Khanna is an experienced financial advisor who is well known for his ability to foretell the market trends as well as for his financial astuteness. He has an MBA in finance from Toronto University as well as years of experience delivering seminars on sound financial practices and debt management. |