Presentation By: Working Capital

Working Capital Presentation by VICTORY group 1.Kanaiya Gadhvi 2.Darshan Joshi 3.Bharat Ahir 4.Mayur Jadeja 5.Jaimin Patel 6.Hardeep Jadeja

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Introduction 

Study of working capital is not only an important part of financial management but also are overall management of the business concern.

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Working capital is described as the capital which is not fixed but the more common uses of the working capital is to consider it as the difference between the book value of current assets and current liabilities.

Classification of capital Capital

Fixed Capital

Working Capital

What is Working Capital…? Ø

Working capital means current assets.

ØWorking capital is short term capital which is required for doing routine activities of business.

WORKING CAPITAL MANAGEMENT Working capital management refers to the management of current assets and current liabilities.

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Estimation of Current Assets Amount a) Minimum desired cash and Bank balances b) Inventories Raw Materials Work in process Finished goods c) Debtors TOTAL CURRENT ASSETS Estimation of Current liabilities Creditors b) Wages c) Overheads Total Current liabilities Net Working Capital 1-2 Add margin for contingency Net Working Capital Required

Concept of Working Capital

Net Working Capital

Working Capital Concepts Gross Working Capital total current assets of the firm GWC = CA

Net Working Capital Current Assets – Current Liabilities NWC = CA - CL

Component of Working Capital Working Capital

Current Assets

Current Liability

Cash

Bills payable

Bank

Sundry Creditors

Bills Receivable Debtors Stock Prepaid expenses Accrued Income

Outstanding

Expenses

Short term loans and advances Dividend Payable Bank Overdraft Provision for Taxation

Types of Working Capital WORKING CAPITAL

PERMANENT WORKING CAPITAL

TEMPORARY WORKING CAPITAL

SEASONAL WORKING CAPITAL

SEMI VARIABLE WORKING CAPITAL

SPECIAL WORKING CAPITAL

Permanent Working

Amount of

Working Capital

Permanent Working Capital

Time

Capital

Temporary Working Capital The amount of current assets that varies with seasonal requirements.

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AMOUNT

Temporary current assets

Permanent current assets

TIME

Amount of

Working Capital

Semi Variable Working Capital

Time

Needs of Working Capital 1.Purchase of raw material & spares 2. 3.Payment of wages & salary 4. 5.Day to day expenses 6. 7.Provide credit obligations

Fa cto rs D e te rm in in g W C Fa cto rs: 1 . Nature of Business Manufacturing and trading enterprises require fairly large amount of working capital , while Service enterprises and hotels and restaurants need to carry less Working capital 2.

Production Cycle The longer the production cycle, the larger the WC need.

Fa cto rs D e te rm in in g W C 3 . Business cycle During boom conditions the need for WC requirement is larger During recessionary conditions the need for WC is low due to low volume of sales and production 4. 5 . Credit Policy Liberal credit policy to customers increase the need for WC 5. 6 . Growth and Expansion Growth industries and firms require more WC 6. 7 . Availability of raw materials A firm require adequate level of inventory of raw materials, which increase the need for WC

Fa cto rs D e te rm in in g W C 7. Production Policy : If the company maintains the continues production policy, there is a need of regular WC 8. Earning Capacity : high level of earning capacity, they can generate more WC

T h e O p e ra tin g C ycle The Operating Cycle (OC) is the time between ordering materials and collecting cash from receivables. R

D

W

F

Raw material ( R) Work in Process ( W) Finished goods (F) Debtor collection stage (D) Creditors payment stage (C)

O= R+W+F+D-C

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