Working Capital
Presentation by
group-8
JAIPURIA INSTITUTE OF
MANAGEMENT
JAIPUR
Introduction
Study of working capital is not only an
important part of financial management but also are
overall management of the business concern.
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.
CLASSIFICATION OF WC:-
WC may be classified in two ways:-
On the basis of concept
- gross working capital
- net working capital
On the basis of time
- permanent or fixed WC
a). regular WC
b). reserve WC
- temporary or variable WC
a). seasonal WC
b). special WC
Conceptually:
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 Outstanding Expenses
Debtors Short term loans and advances
Stock Dividend Payable
Prepaid expenses Bank Overdraft
Accrued Income
Provision for Taxation
Classification of Working Capital
WORKING CAPITAL
PERMANENT TEMPORARY
WORKING CAPITAL SEMI VARIABLE
WORKING CAPITAL WORKING CAPITAL
SEASONAL WORKING CAPITAL SPECIAL WORKING CAPITAL
Permanent Working
Capital
Working Capital
Permanent Working Capital
Amount of
Time
Temporary Working Capital
The amount of current assets that varies with
seasonal requirements.
Temporary current assets
AMOUNT
Permanent current assets
TIME
Semi Variable Working
Capital
Working Capital
Amount of
Time
Why Working Capital is required ?
[Link] of raw material & spares
2.
[Link] of wages & salary
4.
[Link] to day expenses
6.
[Link] credit obligations
ADVANTAGES OF ADEQUATE
WC:-
Maintains solvency of business.
Helps in creating & maintaining goodwill.
Helps in arranging loans from banks & others on easy
and favorable terms.
Ensures regular supply of raw materials.
Regular payment of salaries, wages & other day to day
commitment.
DISADVANTAGES OF EXCESS OR
INADEQUATE WC:-
no profit for the business & no proper rate of return on its
investments.
lead to unnecessary purchasing & accumulation of
inventories .
Excessive WC implies excessive debtors & defective credit
policy which may cause higher incidences of bad-debts.
It may result in overall inefficiency in org.
HOW TO ANALYSIS WC OF ANY
COMPANY
Funds Working
Ratio Flow Capital
Analysis Analysis Budget
Current ratio.
Acid test ratio.
Absolute liquid
ratio.
Inventory turnover
ratio.
Factors Determining WC
Factors:
1 . Nature of Business
3 . Production Cycle
5 . Business cycle
7 . Credit Policy
9 . Growth and Expansion
11 . Availability of raw materials
13 . Production Policy :
14 . Earning Capacity :
10.
Operating
cycle
Operating cycle consists of
five Phases : -
I. Conversion of cash in to Raw materials.
II. Conversation of raw material in to work-in-process.
III. Conversion work in process in to finished goods.
IV. Conversion of finished goods in to receivables.
V. Conversion of Receivables in to cash
Operating cycle:
What group-8 did in his project
