Working Capital (WC) = Current Assets (CA) – Current Liabilities (CL)
• Cash commitments such as buyback of shares, declared dividends, etc. to be excluded from cash-in-hand.
• Exclude non-trade receivables such as loans to employees from total debtors.
• Exclude wasted, old or obsolete inventory from total stock.
• Goods sold on credit: Rs.2,00,000
• Raw Materials: Rs.1,00,000
• Cash in hand: Rs.3,50,000
• Obsolete inventory: Rs.40,000
• Loans given to employees: Rs.50,000
•Outstanding funds payable to creditors: Rs.2,70,000
•Unpaid expenses: Rs.80,000
= Rs.5,60,000 – Rs.3,50,000
MSME stands for Micro, Small and Medium Enterprise. It was introduced by the Government of India in agreement with the Micro, Small and Medium Enterprises Development (MSMED) Act of 2006. As per this act, MSMEs are the enterprises involved in the production, processing or preservation of goods and commodities. Vital for economic growth, this sector contributes around one-third of the country’s GDP and generates employment for around 110 million of the population.
It also plays an important role in the socio-economic development of the country as many of these enterprises operate in rural India. According to the Government's annual report of 2018-2019, more than 6 lakh MSMEs operate in the country.
Initially, MSMEs were classified based on two factors - investment in plant/machinery and an annual turnover of the enterprises. However, the Ministry of Micro, Small and Medium Enterprises has recently revised the classification by combining these two factors into a single criterion.
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