Working Capital Basic Concepts

In case of newly started business: ”The amount that remains in the hands for the working of the business after the necessary fixed assets have been purchased is called Working Capital for the newly started business.”

In case of an established business: Working capital is defined for an already estab1ished business. “The excess of current assets over current liabilities.

It may be stated in the equation

Current assets-Current Liabilities = Working Capital. The amount of working capital is invested -in current assets like stock of raw materials, finished and semi- finished products, bills receivable, debtors and saleable securities etc.

Sources of working capital

The following are the main sources of working capital:

(a)        Issue of share or debentures.

(b)        Managing Agents.

(c)        Reduction of losses, expenditure and wasting.

(d)       Loans from internal and external sources.

(e)        Incorporate Saving.

(f)        Public Deposit.

(g)        Disposed of fixed assets.

Fundamental Factors

The following are the basic guiding factors which determine the amount of the working capital.

Basis of sales and period of credit sales

Basis of sale and period of credit sale will determine the amount of working capital. If business operates on cash basis, it will require less working capital. If it operates on credit basis, it will need more working capital. On the other hand shorter the period of credit sale, the lesser the need for working capital.

Basis of purchase and payment period

If raw material and other necessities are purchased on cash basis, it will require larger working capital. If the period of credit purchase is larger it will need smaller working capital.

Turn over

The greater the velocity in the turnover of working capital, the lesser the amount of working capital is needed.

Cost of Manufacture

Greater the cost of production of goods, greater is the amount of working capital required such as in heavy industry.

Time consumed in manufacture

Longer the time required in manufacturing of the product, the greater the working capital needed to carry the business over that period, such as in shipping industry and aircraft industry.

The business cycle

During period of boom lesser amount of working capital is called than to period of depression. In other words during the period of rising prices, the business will need greater working capital than to period of falling prices.

Scale of business

The larger the scale of business the more amount of working capital is required for the business and vice versa.

Risk of business

Risky enterprises require the greater need of working capital. Lesser hazards enterprises call lesser amount of working capital.

Method of payment

If the payments for variable and nominal expenses are made after some period, the lesser amount of working capital is needed than prompt payment.

Convertibility working assets into cash

A business with large amount of quick or liquid working assets require less amount of working capital. On the other hand, if the firm has lesser liquid working assets, greater working capital will be needed.

Nature of business

The requirements of the working capital differ from business to business. For example in seasonal industries as cotton, sugar, there will be comparatively large requirement of working capital. In case of unseasonal industries, less amount of working would be needed.


8 Scope of Career in Industrial Law

The term industrial law include the body of laws concerning to industrial affairs of a country. It has been found that the laws that are covered by this term do not apply to any other part of industrial matters except the labours management relationship in its entirety and its operative details.

It may, therefore, be defined as the body of enactments, together with the rules made there under and the precedents developed gradually out of industrial cases. It goes to regulate the entire labour management relationship from its very beginning.

These matters may relate to pay, pension, gratuity, punishment and leave of workers, disputes between the labour and the management and the methods of their settlements.

It also covers measures taken by the Govt. in case of strike by labour and lock out by management. An analysis of the definition given above would show that industrial law mean labour law.

If ever it is possible to run industries without the service of labour, the whole body of laws now denoted by the term ‘Industrial Law’ would at once ceases to have any utility at all.

In our country ‘Industrial Law’ means ‘labous law’ made and applied to fined solution to various labour problems of the country.

Scope of Industrial Law

Industrial law is the various labour laws so far made and put into operation in this country that properly come under the scope of this term Consequently, law relating to the following important fields are covered by the term ‘Industrial Law’.

  1. Law relating to factories
  2. Law relating to transport by land and inland navigation
  3. Law relating to mines
  4. Law relating to trade union
  5. Law relating to wages overtime, safety, general welfare and social security of workers
  6. Law relating to plantations
  7. Law relating to industrial disputes and their settlement
  8. Law relating to workers in industrial and commercial establishments