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150 Financial Management Capital Fixed Capital Working Capital Fig. 10.1 Capital of the Business Fixed capital means that capital, which is used for long-term investment of the business concern. For example, purchase of permanent assets. Normally it consists of non-recurring in nature. Working Capital is another part of the capital which is needed for meeting day to day requirement of the business concern. For example, payment to creditors, salary paid to workers, purchase of raw materials etc., normally it consists of recurring in nature. It can be easily converted into cash. Hence, it is also known as short-term capital. Definitions According to the definition of Mead, Baker and Malott, “Working Capital means Current Assets”. According to the definition of J.S.Mill, “The sum of the current asset is the working capital of a business”. According to the definition of Weston and Brigham, “Working Capital refers to a firm’s investment in short-term assets, cash, short-term securities, accounts receivables and inventories”. According to the definition of Bonneville, “Any acquisition of funds which increases the current assets, increase working capital also for they are one and the same”. According to the definition of Shubin, “Working Capital is the amount of funds necessary to cover the cost of operating the enterprises”. According to the definition of Genestenberg, “Circulating capital means current assets of a <strong>com</strong>pany that are changed in the ordinary course of business from one form to another, for example, from cash to inventories, inventories to receivables, receivables to cash”. CONCEPT OF WORKING CAPITAL Working capital can be classified or understood with the help of the following two important concepts.
Working Capital 151 Gross Working Capital Net Working Capital Fig. 10.2 Working Capital Concept Gross Working Capital Gross Working Capital is the general concept which determines the working capital concept. Thus, the gross working capital is the capital invested in total current assets of the business concern. Gross Working Capital is simply called as the total current assets of the concern. GWC = CA Net Working Capital Net Working Capital is the specific concept, which, considers both current assets and current liability of the concern. Net Working Capital is the excess of current assets over the current liability of the concern during a particular period. If the current assets exceed the current liabilities it is said to be positive working capital; it is reverse, it is said to be Negative working capital. NWC = C A – CL Component of Working Capital Working capital constitutes various current assets and current liabilities. This can be illustrated by the following chart.
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Preface Financial Management is an
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Contents • Increase the value of
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Contents • Effects of under capit
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Contents Modigliani and Miller’s
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Contents • Average stock level 16
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Contents • Operational result of
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Contents Insurance Sector in India
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2 Financial Management According to
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4 Financial Management SCOPE OF FIN
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6 Financial Management 3. Profit is
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8 Financial Management Traditional
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10 Financial Management Proper Use
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12 Financial Management Financial S
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14 Financial Management the operati
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16 Financial Management Solution Co
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18 Financial Management Exercise 3
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20 Financial Management Solution Sc
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22 Financial Management Solvency Ra
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24 Financial Management Debtors Tur
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26 Financial Management SOURCES OF
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28 Financial Management SECURITY FI
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30 Financial Management profit, the
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32 Financial Management 2. Cumulati
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34 Financial Management Features of
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36 Financial Management financial y
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38 Financial Management Short-term
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42 Financial Management Character o
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44 Financial Management • Excessi
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48 Financial Management According t
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50 Financial Management FACTORS DET
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52 Financial Management -up to Rs.
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54 Financial Management where V = S
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56 Financial Management NI approach
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58 Financial Management where I = I
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60 Financial Management Company ‘
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64 Financial Management MODEL QUEST
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66 Financial Management According t
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68 Financial Management Importance
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70 Financial Management (b) If the
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72 Financial Management Cost of Deb
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74 Financial Management Cost of deb
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76 Financial Management = 1,60,000
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78 Financial Management W p = Perce
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82 Financial Management You are req
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84 Financial Management Leverage Fi
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86 Financial Management Operating l
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88 Financial Management Financial l
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90 Financial Management Where, DR=
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92 Financial Management Capital str
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94 Financial Management WCL = Perce
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96 Financial Management EBT 1,400 1
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98 Financial Management 14. The fol
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Page 126 and 127: 110 Financial Management As per Wal
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Page 136 and 137: 120 Financial Management It is clea
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Page 142 and 143: 126 Financial Management 5 20,000 1
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Page 148 and 149: 132 Financial Management Base facto
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Page 156 and 157: 140 Financial Management Cash inflo
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Page 170 and 171: 154 Financial Management NEEDS OF W
Page 172 and 173: 156 Financial Management 5. Credit
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Page 178 and 179: 162 Financial Management Conservati
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Page 186 and 187: 170 Financial Management Ordering c
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Page 190: (A) First in First out Method FIFO
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Page 198 and 199: 180 Financial Management 1. Sales L
Page 200 and 201: 182 Financial Management Percentage
Page 202 and 203: 184 Financial Management Solution S
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198 Financial Management 13. On 1 A
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200 Financial Management According
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202 Financial Management 7. Domesti
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204 Financial Management • Unit T
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206 Financial Management 11. IDBI J
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208 Financial Management In 1998 a
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210 Financial Management The follow
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212 Financial Management 4. FDI in
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214 Financial Management (b) SEBI s
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216 Financial Management Bank of Ba
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218 Financial Management BB FB P4 I
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222 Financial Management Types of M
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224 Financial Management MODEL QUES
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226 Financial Management Financial
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228 Financial Management State Bank
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230 Financial Management • Global
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232 Financial Management Capital In
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234 Financial Management Subsidies
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236 Financial Management financial
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238 Financial Management Functions
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240 Financial Management • Touris
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242 Financial Management During the
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244 Financial Management Management
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246 Financial Management Financial
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248 Financial Management The second
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250 Financial Management 12. Bhuban
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252 Financial Management Group A an
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254 Financial Management The number
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256 Financial Management Depreciati
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258 Financial Management A well-org
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260 Financial Management Intermedia
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262 Financial Management Venture Ca
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264 Financial Management Non-Bankin
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