ECONOMICS (CBSE/UGC NET)

Detailed explanation-1: -Working capital is the difference between a company’s current assets and current liabilities. Working capital is used to purchase inventory, pay short-term debt, and day-to-day operating expenses. Working capital is critical since it’s needed to keep a business operating smoothly.

Detailed explanation-2: -In short, 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 levels, project your future needs and consider ways to make sure you always have enough cash.

Detailed explanation-3: -Why Is Working Capital Important? Working capital is used to fund operations and meet short-term obligations. If a company has enough working capital, it can continue to pay its employees and suppliers and meet other obligations, such as interest payments and taxes, even if it runs into cash flow challenges.

Detailed explanation-4: -In a nutshell, working capital is the amount of money your business needs to meet its everyday financial obligations and still operate successfully. It’s the amount you need in available cash so that you can pay suppliers and employees, take care of maintenance costs, buy in stock, and pay your overheads.

Detailed explanation-5: -Continuity in Business Operations: Working capital keeps the business operations going. It is needed to purchase raw materials, to pay the workers and staff and also to pay for recurring expenses like electricity and power bills, rent, etc.