Question
Describe briefly the sources of finance for working capital.
Answer :
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Working capital refers to the capital required by a business to manage its day-to-day operations. It is essentially the difference between a company's current assets and current liabilities. The sources of finance for working capital are essential for ensuring that a business can meet its short-term obligations and operate smoothly without any liquidity issues. The financing of working capital can be obtained through various sources, which can be broadly categorized into short-term and long-term sources. The first and most common source of working capital finance is internal financing. Internal sources include retained earnings, which are the profits retained by the company after paying dividends. These earnings are a readily available source of finance for working capital as they do not involve external borrowing. Another internal source of finance is the sale of assets, such as old machinery or surplus inventory. This can provide the business with quick funds that can be directed towards financing working capital needs.
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