Definition of Working Capital
Working capital to working capital credit is part of financial management. Various definitions of working capital have been described in general and put forward by experts.
Working capital is one of the asset elements that plays a significant role in the company. This is due to working capital as a fulfillment of budget requirements in carrying out company activities.
In simple working capital is defined as investment in current assets for the company.
Understanding Working Capital in General
In general, effect of working capital management or Working Capital has the meaning of excess current assets in short-term liabilities (debts).
The excess is net working capital.
Another definition states that working capital is capital that is needed in financing all activities so that the business is carried out based on the plans that have been made.
Working capital in this case is capital that is not used for investment but rather for operational activities.
In the balance sheet, the working capital formula is obtained by subtracting current assets from liabilities that need to be paid.
Examples of known working capital include short-term assets. The said short-term assets such as cash, securities, receivables and other current assets. In this case the work value is very dependent on current assets and immediate debt.
Type of Working Capital
There are two types of working capital proposed by Munawir (2010):
The permanent part (fixed) which is the minimum amount that should be available so that the company can operate without financial problems.
The number of work variables is variable with a number that depends on seasonal activities and needs other than ordinary activities.
Working Capital Function
Manulang (2005) states the role and function of work process, especially in companies engaged in industry.
Its functions are as follows:
Continuity of continuity of operational activities
Supporting company management in decision making
Present information to short-term creditors about the level of corporate financial security
All internal and external activities of the company are greatly influenced by the company's financial condition.
Definition of Working Capital According to Experts
Working capital is a company's investment in short-term assets such as cash or securities that are easily sold, inventory and receivables. While net working capital is a reduction in current assets with current debt.
Eugene F. Brigham and Joel F. Houston
Working capital is the sum of current assets. The current assets are gross working capital. This understanding is quantitative because the amount of funds used in short-term operating purposes
The availability of working capital is highly dependent on the level of liquidity of current assets (cash, securities, inventories, and receivables)
Jumingan (2006)
Working capital 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 debt. So it is known that there is a net work load and gross work load.
William H. Husband and James C. Dockerey
The Concept of Working Capital
Based on various previous notions there are three concepts of working capital. The three concepts are as follows:
Quantitative Concepts
Quantitative focus is on the quantum needed to meet the company's requirements for routine operations financing. In addition it shows the amount of funds that are in the target short-term operations
This concept states that work income is the amount of current assets.
Qualitative concept
Qualitative states the definition of working capital is the difference between current assets with short-term debt. The definition means the amount of current assets of the company owner or a long-term loan. Qualitative in essence focuses on work.
Functional Concepts
This concept focuses on the function of existing funds to create profits from the company's core business.
Working Capital Management
Working capital management is management of current assets and liabilities. According to Muslich (2005) working capital tells related to the amount of investment carried out by the company on current assets and current debt claimed by the company.
Besides that, another important thing is investment in goods receivables or liquid assets that are very sensitive at the level of Productivity and sales
The Purpose of Working Capital Management
Working capital management has several goals (Kashmir, 2012) that need to be known, namely:
In order to fulfill profitability for the company
The availability of work, the company will be able to pay obligations in accordance with the specified time
If the financial ratio shows a positive trend, the company can get an injection of funds from creditors
To optimize current assets in increasing sales and profits.
As protection if the working capital crisis occurs due to fluctuating current asset values
Working Capital Turnover
Working capital turnover is a ratio that is used in the measurement or evaluation of the level of effectiveness of work in a certain period. The ratio can be calculated through comparison of sales with work (average).