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O Stocks of Raw Materials o Work-In-Progress o Finished Goods o Trade Debtors o Prepayments o Cash Balances

The document defines net working capital as a business's current assets minus its current liabilities. It lists current assets as stocks, work-in-progress, finished goods, trade debtors, prepayments, and cash balances. Current liabilities include trade creditors, accruals, taxation payable, dividends payable, and short term loans. Maintaining adequate net working capital is important for businesses to ensure they have enough cash flow for day-to-day operations and meeting short-term obligations.

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uttamsudhir
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36 views

O Stocks of Raw Materials o Work-In-Progress o Finished Goods o Trade Debtors o Prepayments o Cash Balances

The document defines net working capital as a business's current assets minus its current liabilities. It lists current assets as stocks, work-in-progress, finished goods, trade debtors, prepayments, and cash balances. Current liabilities include trade creditors, accruals, taxation payable, dividends payable, and short term loans. Maintaining adequate net working capital is important for businesses to ensure they have enough cash flow for day-to-day operations and meeting short-term obligations.

Uploaded by

uttamsudhir
Copyright
© © All Rights Reserved
Available Formats
Download as PDF, TXT or read online on Scribd
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Page 5

I IN NT TR RO OD DU UC CT TI IO ON N

The net working capital of a business is its current assets less its current liabilities.

Current Assets include:
o Stocks of raw materials
o Work-in-progress
o Finished goods
o Trade debtors
o Prepayments
o Cash balances

Current Liabilities include:
o Trade creditors
o Accruals
o Taxation payable
o Dividends payable
o Short term loans

Every business needs adequate liquid resources in order to maintain day-to-day cash flow.
It needs enough cash to pay wages and salaries as they fall due and to pay creditors if it is
to keep its workforce and ensure its supplies.

Maintaining adequate working capital is not just important in the short-term. Sufficient
liquidity must be maintained in order to ensure the survival of the business in the long-term
as well.

Even a profitable business may fail if it does not have adequate cash flow to meet its
liabilities as they fall due.

Therefore, when businesses make investment decisions they must not only consider the
financial outlay involved with acquiring the new machine or the new building, etc, but

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