Working Capital and the Operating Cycle.

Abstract This article focuses on the working capital. The amount of working capital of a business is not simply a passably interesting item, font is a figure which can be put to dynamic use in the bands of capable management. When an attempt is made to relate current items to the operating cycle of a business, working capital becomes a vital financial guidepost. The utility to management of the working capital concept lies in analysis of working capital and in interpretation of the reasons/or changes in each of its component parts. The effect of each factor in the composite working capital figure is reflected in the whole so that the implications of individual debits can be considered of view. The initial working capital of a business is the fund of free capital placed in the hands of management by investors. It is the responsibility of management to commit these funds to the productive purposes for which the business was formed, and, at the end of the operating cycle, to disinvest the funds originally committed into new free capital available for recommitment to new productive purposes. Fund disinvestment is accomplished through sale of the end product of a business firm and settlement of the receivable then created by cash payment by the customer.