Working Capital Components
Efficient management of working capital involves effective control over the current assets and current liabilities, which are the main working capital components.
1. Working Capital Components of Current Assets: Current assets are those assets that in the ordinary course of business, can be or will be turned into cash within an accounting period (not exceeding one year) without undergoing a diminution in value and without disrupting the operations. Total current assets consist of cash, marketable securities, inventories, sundry debtors, one year fixed deposits with banks, and prepaid expenses.
2. Working Capital Components of Current Liabilities: Current liabilities are those liabilities intended to be paid in the ordinary course of business within a reasonable period (normally within a year) out of the current assets or revenue of the business. The current liabilities consist of sundry creditors, loans and advances, bank overdraft, short-term borrowings, taxes and proposed dividend.