Discuss the Significance/Importance of working capital for a firm

 Working capital is the life blood for running an organization. It is very essential to maintain smooth running of a business. The main significance or importances of working capital are as follows:

 

1. Supports as initial partial capital: The working capital can helps to adequate liquidity to developing a business.

2. Strengthen the Solvency: It helps to operate the smooth flow of production and business without any financial problem for making the payment of short- term

liabilities.

3. Enhance the project growth: Sufficient working capital enables to make prompt payments and helps in creating goodwill.

4. Easy obtaining finance: A firm having adequate working capital, high

solvency and good credit rating can arrange loans from banks in easy and favorable terms.

5. Regular supply of raw material: Quick payment of credit purchase of raw materials ensures the regular supply of raw materials from suppliers.

6. Smooth business operation: It maintains a good shape in entire developments

for a developing project.

7. Ability to face crisis: In crisis to emergency needs, it enables to meet working capital requirement for the project.

Define Working Capital, What is Working Capital Loan? Distinguish between working capital (W/C) and cash credit (CC) loan Sl

 A working capital loan is a loan used by an organization to cover day-to-day operational expenses. For example, a company is unable to generate the revenue to meet expenses incurred by day-to-day operations. In such case, company may apply for a working capital loan. A working capital loan covers only expenses incurred by existing capital, human resources, etc.

Define Working Capital

Working capital signifies money required for day-to-day operations of an organization. No business can run without the provision of adequate working capital.  It has two types:  1) Gross working capital that refers to as working capital means the total current assets; 2) Net working capital that the differences between current assets and current liabilities.

Distinguish between working capital (W/C) and cash credit (CC) loan 

	Working Capital Loan	Cash Credit Loan
1	It is taken for a certain period like 5 years	It is for one year and need to renewed every year
2	Repayment is made by Equal monthly installment basis	Repayment is made by only interest or any sum of amount
3	If the fund is required for purchase of capital assets, then the bank gives the working capital loan	If the fund is required for meeting the working capital requirement, then the bank gives the CC limit
4	The loan amount may pay at ones and repayment is made by monthly basis	The payment and repayment is made by day basis
5	It may be secured by personal guarantee or mortgage of any fixed asset	It may be hypothecated and pledged by stock and receivables