√ Definition of Working Capital, Concept, Type, Benefits, Management and Use
Definition of Working Capital, Concept, Type, Benefits, Management and Use – In this discussion we will explain about Working Capital. Working capital is related to one's field of business to be able to run with the plans that have been made.
Definition of Working Capital, Concept, Type, Benefits, Management and Use
In a business, of course capital is needed. Capital is not always in the form of money, but energy, ideas, planning and others. For this reason, we will review in full the following about working capital, its concept, types, benefits, management, use and turnover of working capital. Read the discussion below carefully.
Definition of Working Capital
Working capital is capital that is needed in financing all activities so that the business runs according to a plan that has been made. Working capital is also interpreted as an excess of current assets in short-term liabilities (debt). The excess is net working capital.
Another definition of working capital is a company's investment in short-term assets such as cash and marketable securities, inventories and receivables. Then the net working capital is the reduction of current assets with current liabilities.
Definition of Working Capital According to Experts
The following is the definition of working capital according to experts.
1. Jumingan (2006)
The definition of working capital according to Jumingan is the amount of current assets on the company's balance sheet. The concept of net working capital is the reduction between current assets or current assets and current liabilities/current liabilities. So it is known that there is net working capital and gross working capital.
2. Cashmere (2012:250)
The definition of working capital according to Kasmir is the capital used to carry out the company's operations. Working capital is defined as an investment invested in current assets or short-term assets such as cash, banks, securities, receivables, inventories and current assets.
3. Eugene F. Brigham and Joel F. Houston
The definition of working capital according to Eugene F. Brigham and Joel F. Houston is the sum of current assets. The current assets are gross working capital. This definition is quantitative because of the amount of funds used for short-term operating purposes. The availability of working capital is highly dependent on the level of liquidity of current assets (cash, marketable securities, inventories and receivables).
Working Capital Concept
Munawir (2010: 14) states that in general there are three concepts of working capital used, including:
-
Quantitative Concept
This concept focuses on quantum which is applied to cover the company's needs in financing operations that are routine in nature or describe the amount of funds (funds) available for long-term operating purposes short. This concept assumes that working capital is the amount of current assets (gross working capital). -
Qualitative Concept
This concept focuses on the quality of working capital. In this concept, the definition of working capital is the excess of current assets over short-term debt (net working capital), namely the amount of current assets originating from long-term loans or owners company. -
Functional Concept
This concept focuses on the function of the funds owned in order to generate revenue (profit) of the company's main business.
Types of Working Capital
Munawir (2010: 119) states that there are two types of working capital, namely:
- The fixed or permanent part is the minimum amount that must be available so that the company can run without financial difficulties.
- Variable amount of working capital whose volume depends on seasonal activities and needs outside of ordinary activities.
Benefits of Working Capital
Munawir (2010: 116) states the benefits of working capital include:
- As a protector of the company against a working capital crisis because of the decrease in the value of current assets.
- It is very possible to be able to pay all obligations on time.
- It is possible to have enough inventory to serve customers
- Allows the company to provide more favorable terms to its customers.
- Providing opportunities for companies to be able to run more efficiently because there are no difficulties in obtaining the goods and services needed.
Working Capital Management
Muslich (2005:142) states that working capital management is the management of current assets and liabilities. Working capital management has several important meanings for the company.
First, working capital describes the size of the investment made by the company in current assets and claims against the company represented by current debt. Second, investment in liquid assets, receivables is sensitive to the level of productivity and sales.
Whereas Cashmere (2012: 253) states the objectives of working capital management include:
- As the fulfillment of the needs of the company's profitability.
- With sufficient working capital, the company has the ability to meet its obligations on time.
- Allows companies to obtain additional funds from creditors if financial ratios meet the requirements.
- To optimize the use of current assets to increase sales and profits. Protect yourself in the event of a working capital crisis due to a decrease in the value of current assets.
Use of Working Capital
Kashmir (2012: 258), the use of working capital is often carried out by companies for the following matters, namely:
- Expenses for salaries, wages and other company operational costs
- Expenditure to purchase raw materials or merchandise
- Cover losses due to the sale of securities
- Formation of funds
- Purchase fixed assets (land, buildings, vehicles and machinery).
Working Capital Turnover
Working capital turnover is the ratio used in measuring or assessing the level of effectiveness of working capital in a certain period. The ratio can be calculated by comparing sales with working capital (average)
The working capital turnover formula is:
Thus has been explained about Definition of Working Capital, Concept, Type, Benefits, Management and Use, hopefully can add to your insight and knowledge. Thank you for visiting and don't forget to read other articles.
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