by Working capital represents the funds required for day-to-day operations of a business. It ensures smooth running of business activities, like purchasing raw materials, paying wages, and meeting short-term expenses. Estimating working capital helps small businesses plan finances, avoid cash shortages, and maintain operational efficiency.
Step 1: Estimate Current Assets
| Particulars | Amount (₹) |
|---|---|
| Cash | 50,000 |
| Accounts Receivable / Debtors | 1,00,000 |
| Inventory / Stock | 1,50,000 |
| Prepaid Expenses | 10,000 |
| Total Current Assets | 3,10,000 |
Step 2: Estimate Current Liabilities
| Particulars | Amount (₹) |
|---|---|
| Accounts Payable / Creditors | 80,000 |
| Short-term Loans | 50,000 |
| Accrued Expenses | 20,000 |
| Total Current Liabilities | 1,50,000 |
Step 3: Calculate Working Capital
Working Capital = Current Assets − Current Liabilities
= 3,10,000 − 1,50,000 = ₹1,60,000
Step 4: Analysis
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Positive working capital (₹1,60,000) indicates the business can meet its short-term obligations.
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Helps in planning additional financing if required.
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Ensures uninterrupted operations and better liquidity management.
