what is the difference between stock in trade and working capital?
At the end of the year, the goods which are lying unsold in the business are regarded as Stock or Stock-in Trade. For example, suppose we deal in ready made shirts and purchased shirts for Rs 1,00,000 during a particular financial year. At the end of the year, let's say that shirts worth Rs 20,000 remained unsold and lying in godown. In this case, it is clear that there is a Stock of Rs 20,000.
Also, every business needs to take the decision regarding the investment in current assets i.e. the working capital. Current assets refer to the assets that are converted into cash or cash equivalents in a short period of time (less than or equal to one year). There are two broad concepts of working capital namely, Gross working capital and Net working capital.
Gross working capital (or, simply working capital) refers to the investment done in the current assets. Net working capital, on the other hand, refers to the amount of current assets that is in excess of current liabilities. Herein, current liabilities are those obligatory payments which are due for payment such as bills payable, outstanding expenses, creditors, etc. Net Working Capital is calculated as the difference of current assets over current liabilities. i.e.
Net Working Capital = Current Assets − Current Liabilities