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Why is Working Capital Also Known as Circulating Capital? - Commerce

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प्रश्न

Why is working capital also known as circulating capital? 

टीपा लिहा

उत्तर

Working capital is the portion of capital invested in the short-term assets of a business. It consists of cash receipts from sales which are used to cover the cost of current operations. It is also known as circulating capital as it keeps circulating or revolving in business. It is invested, recovered and reinvested repeatedly during the business cycle.

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2015-2016 (March) Set 1

व्हिडिओ ट्यूटोरियलVIEW ALL [2]

संबंधित प्रश्‍न

Match the pairs 

Group A

Group B

a. Fixed Capital

1. Owned Capital

b, Overdraft facility

2. Bearer document

c. Share certificate

3. Investment in fixed assets

d. Debentures

4. Current Account

e. Return on shares

5. Application Money

 

 

 

 

 

6. Dividend

7. Investment in current assets

8. Borrowed capital

9. Savings Account

10. Registered Document


Explain the following as factor affecting the requirements of fixed capital:

Choice of technique


Explain the following as factors affecting the requirements of working capital:

Nature of business


Amrit is running a ‘transport service’ and earning good returns by providing this service to industries. Giving reason, state whether the working capital requirement of the firm will be ‘less’ or ‘more’.


Ramnath is into the business of assembling and selling of televisions. Recently he has adopted a new policy of purchasing the components on three months credit and selling the complete product in cash. Will it affect the requirement of working capital? Give reason in support of your answer.


Which of the following factors highlight the importance of capital budgeting decisions


______ of a firm refers to those assets which can be converted into cash or cash equivalents in a short period of time.


Read the following text and answer the following question on the basis of the same:

Mr. A. Bose is running a successful business. Mr. Bose is the owner of R. K. Cement Ltd. Mr. Bose decided to expand his business by acquiring a Steel Factory. This required an investment of Rs. 60 crores. To seek advice in this matter, he called his financial advisor Mr. T. Ghosh who advised him about the judicious mix of equity (40%) and Debt (60%). Employ more of cheaper debt may enhance the EPS. Mr. Ghosh also suggested him to take loan from a financial institution as the cost of raising funds from financial institutions is low. Though this will increase the financial risk but will also raise the return to equity shareholders. He also apprised him that issue of debt will not dilute the control of equity shareholders. At the same time, the interest on loan is a tax-deductible expense for computation of tax liability. After due deliberations with Mr. Ghosh, Mr. Bose decided to raise funds from a financial institution.

"Mr. T. Ghosh who advised him about the judicious mix of equity (40%) and Debt (60%)." The proportion of debt in the overall capital is called ______.


Dhaval Acharya, after acquiring a bachelor’s degree in Hotel Management joined his father’s chain of vegetarian restaurants in Ahmednagar. Being young and enterprising, he suggested his father to add a new section of vegetarian bakery items which required an investment of ₹ 5 crores. His father Mr. Aariketh Acharya suggested him to take the decision with caution and understood everything comprehensively as bad decision may damage the financial fortune of business.

Identify the decision suggested by Mr. Aariketh Acharya. State by giving any three reasons as to why he must have advised his son to take decision with caution.


A business firm should have extra funds to meet future emergencies. Identify the type of working capital indicated here.


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