Short term purposes
In order to run their operations, corporates buy goods from the market
(raw material); process them in their own facilities (or outsource
processing); convert them into saleable goods (product or finished goods)
and then sell them in the market (against cash or credit i.e. a promise to
get money after a short time). This entire process - also called cash
cycle - takes anything between one to six months for most corporates. At
each one of these stages, expenditure is incurred without any inflow of
money. The inflow starts only when cash is paid (also called sales
proceeds) for the goods produced by the corporate. The finance needed to
fund the expenditure in the intervening period is of short-term nature (as
it is to be paid back out of the sales proceeds) and is also called working
capital.
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