A business has two types of capital:
Working capital consists of the current assets and the current liabilities of the business and is calculated as follows:
Working capital = Current assets (inventory, trade receivables and cash)less Current liabilities (trade payables and bank overdraft)
Current liabilities represent the short-term debts of the business which will require payment in the near future. Cash will be the medium by which these short-term debts will normally be repaid and settled, but having assets which are expected to be converted ...