Question

“Working capital means circulating capital in business.” – Explain.

Answer 1

• A human being remains alive as long as blood keeps circulating his body. Moreover, if any part of the body is devoid of sufficient quantity of blood then that part or organ may start functioning abnormally.
• Capital does the same job for the business. If the business lacks blood, it will start functioning abnormally and eventually die.
• Capital must be provided in order to see that all the department and functions of the business work smoothly. Absence of capital means death of business.
• Hence it is rightly said that working capital is the life-blood of business.