Working capital management

working capital is defined as the excess of current assets over liabilities. Current assets are those assets which will be converted in to cash within the current accounting period or with in the next year as a result of the ordinary operation of the business. They are cash or near cash resources. The value represented by these assets circulates among several items. Cash is used to buy raw materials, to pay wages and to meet other manufacturing expenses. Finished goods are produced. These are held as inventories. When these are sold accounts receivables are created. working capital is also known as circulating capital, fluctuating capital and revolving capital. The magnitude and composition keep on changing continuously in the course of business. working capital is required because of the time gap between the sales and their actual realization in cash. This time gap is technically termed as operating cycle of the business.