what do you understand by working capital?

Working capital, commonly known as "cash on hand," is a term used by corporations to describe the proportion of additional assets to total liabilities that can be liquidated for cash. The working capital of a corporation is measured by adding up all of its assets and subtracting any debts owed to creditors or lenders.

Working capital can be computed in a variety of methods, as you will see. Consider the following scenario: $1 million in inventory and $500,000 in payables. The company's estimated value would be somewhat more than $1 million.

For a start-up at the very budding stage of their journey, the following are some of the best ways of raising working capital:

(i) The easiest and most popular way to raise working capital in India has always been to borrow money from friends and family.

This is because other ways often involve a lot of formal paperwork and a good amount of downtime during the process. Whereas trusted friends and relatives can quickly help with liquid assets (cash).

(ii) Due to the ‘Make in India’ and start-up initiative by the Indian government, budding startups find many ‘angel investors’ who may invest purely in your capabilities as an entrepreneur and the innovation or idea you are betting on. The government itself lends money through various schemes such as the PMRY scheme.

(iii) Many small and medium enterprises mortgage tangible assets (land, vehicle, etc.) to raise working capital. Gold loans are another favored option in this category.

(iv) The rise of fintech platforms has also benefited start-ups to raise working capital. EnKash through its digital interface and 100% digital KYC offers the collateral-free working capital loan. Other ways include corporate cards such as EnKash Credit card for a paperless transaction, issued without concern of your credit score.

Many people find that they need to supplement their own capabilities with the help of a co-founder or investor. If you are thinking about raising venture capital, you must have an understanding of what your assets are worth and how much your future liabilities will be. One way to calculate the amount of working capital you will need is by calculating a company’s fixed asset value (FAV). A company's FAV is the total estimated replacement value for all of its assets such as buildings and other fixed property, equipment, inventory, etc. Generally speaking, a company with higher than average ratios of FAVs to current liabilities has more working capital than others in proportion to its debt and equity balances.