Working capital represents funds required to meet short-term commercial operation of a business. It is an important task of management accountant to forecast the requirement of working capital in judicious and prudent manner. Working capital forecast in the process of determining an optimum level of investment in working capital. It is to keep in mind that working capital is forecast on an average basis and not on any specific points of line. Working capital forecast involves estimation of current assets and current liabilities. The degree of efficiency of working capital can be understood with the help of current ratio, quick ratio, Debtors to sales, working capital to sales, credit payment period and so on. All of these can be helpful as per demand of the situation. It is important to note that no component of current assets remain idle in the business and similarity short term loan like bank overdraft, commercial paper, sundry creditor as well as outstanding liabilities should not be kept very high level but they should be kept at such level which is just required to match demand of the firm. While forecasting the requirement of working capital. The management accountant must be well conversant with the norms of Tandon and chore committee for working financing.
