Working capital is also called revolving, circulating or short term capital. Every business require the funds for its establishment which is called fixed capital and require funds to carry out its day to day operations like purchase of raw material, payment of wages etc. which is called working capital. Thus, working capital is the capital required to finance the short term or current assets such as cash, securities, debtors, stock. It refers to current assets – current liabilities. The aim of working capital management is to manage the current assets and current liabilities of the firm in a satisfactory manner. The working capital should neither be excessive nor be inadequate. As the working capital management policies has effect upon the liquidity, profitability and health of the organization. It has three dimensions.
Dimension I: It is concerned with formulation of policies relating to risk, profitability and liquidity.
Dimension II: It is concerned with the decision about the composition and level of current assets.
Dimension III: It is concerned with the decision about the composition and level of current liabilities.