Capital formation is of crucial importance in the process of economic development. Experience of development in other countries suggests that a high rate of capital formation was achieved to trigger rapid economic growth. The Indian planning commission puts this idea correctly when it states: "The level of production and the material well-being a community can attain depends, in the main, on the stock of capital and its disposal, i.e., on the amount of land per capital and of productive equipment in the shape of machinery, buildings, tools and implements factories, locomotives, engines, irrigation facilities, power installations and communications. The large stock of capital, the greater trend to be the productivity of labour and therefore, the volume of commodities and services that can be turned out with same effort." The investment in the working capital is decisive to any financial manager as it is important as the investment in the fixed capital. The management of current assets is similar to that of fixed assets in a sense that in both cases the firm analyses their effects on its return and risk. Working capital management focuses on firm's investment in current assets and current liabilities. Excessive investment in current assets impairs firm's profitability, as idle investment earns nothing while inadequate amount of working capital can threaten the solvency of the firm, if it fails to meet its current obligations
