Topic: Working Capital Management

Presented By: Prajakta Bane Viraj Dalvi Vikrant Khanapurkar Rohan Nalawade

Presented To: Priyanka Mohan

Meaning of Working Capital

The term Working Capital refers to: Those current assets, which are convertible into cash, within a period of one accounting year and Those funds needed for meeting day to day operations.

Classification Of Working Capital

The working capital is classified in two ways: I. On the basis of Concepts a) Gross working capital b) Net working capital II.On the basis of Time a) Fixed working capital b) Variable working capital

Factors Of Working Capital

Nature of Business Size of Business Sales & Demand Conditions Technology & manufacturing Policy

Credit Policy

Operating cycle
Collection of Receivables Acquisition of resources

Manufacture of Product Credit Sales

Calculation of operating cycle

OC= A+R+W+F+D-C
OC= Operating cycle A = Amount paid for the purchase of raw material R = Storage of raw material period W = WIP period F = Finished goods period D = Debtors collection period C = Creditors payment period

Management of working capital

Cash management
Receivable Management

Inventory Management

Example
From the following information, extracted from the books of a manufacturing company of Kalyan & co, compute the operating cycle in terms of days & amount of working capital needed for the firm. Period covered days Avg. period of credit allowed by suppliers ooo) Avg. total of Debtors outstanding Raw Material consumption 4400 Total Production Cost Total Cost of Sales 10,500 Sales for the year 16,000 Value of Avg. Stock maintained: 365 20 days (Rs.In 480

10,000

Example
Prepare an estimate of working capital requirement from the following details of a company which has paid up share capital of Rs.10,00,000, 6% debentures of Rs.1,00,000 and fixed assets of Rs.7,50,000.
The monthly production and sales will be 5000 units to be sold at RS.15 each. The per unit cost will be: Material Rs.6 Wages Rs. 4.50 Expenses Rs.1.50 Raw materials and finished goods will remain in stock for 1.5 months and 2 months respectively. The process time will be 1 month. The credit allowed to debtors and received from creditors will be two months and one month respectively