This action might not be possible to undo. Are you sure you want to continue?
•Allows to avail of unexpected opportunities. . •A short term loan which provides money to buy earning assets.WORKING CAPITAL •Current assets – Current liabilities •It measures how much in liquid assets a company has available to build its business.
accounts receivable and payable and cash.WORKING CAPITAL • Positive working capital is required to ensure that a firm is able to continue its operations and that it has sufficient funds to satisfy both maturing short-term debt and upcoming operational expenses. for example has paid off some short-term creditors. or other current assets) or has decreased current liabilities. . • An increase in working capital indicates that the business has either increased current assets (that is received cash. The management of working capital involves managing inventories.
• If current assets are less than current liabilities. . A firm‟s short term assets and its short term liabilities. • These involve managing the relationship bet.Working Capital Management • Decisions relation to working capital and short term financing are referred to as working capital management. also called a working capital deficit. • Management of Working capital refers to management of CA as well as CL. an entity has a working capital deficiency.
.Working Capital Management • The goal of working capital management is to ensure that the firm is able to continue its operations and that it has sufficient cash flow to satisfy both maturing short term debt and upcoming operational expenses.
Operating Cycle Also known as working capital cycle. . The time between purchase of inventory items and their conversion into cash.
Operating Cycle .
Concepts of Working Capital Management • Gross Working capital • Net Working Capital .
referred as “Economic concept” since assets are employed to derive a rate of return. etc. debtors. . Gross Working Capital Total Current assets Where current assets are the assets that can be converted into cash within an accounting year & include cash.a.
Net Working Capital • CA – CL • Referred as „point of view of an Accountant‟ • It indicates liquidity position of a firm & suggests the extent to which working capital needs may be financed by permanent sources of funds. .b.
Kinds of Working Capital • • Fixed. Fluctuating. Regular or Permanent Working Capital Variable. Temporary or Special Working Capital. Seasonal. .
the minimum level of investment in current assets that is required to continue the business w/o interruption is referred as permanent working capital. . Thus. Fixed Working Capital • • The is always s a minimum level of CA which is continuously required by a firm to carry on its business.Kinds of Working Capital a.
Variable Working Capital •This is the amount of investment required to take care of fluctuations in demand consequent upon changes in production & sales as a result of seasonal changes. .Kinds of Working Capital b.
• Investment in permanent portion can be predicted with some profitability whereas investment in Variable cannot be predicted easily. . Variable is expected to take care for peak in business activity. • While permanent is minimum investment in various CA.Distinction • Permanent is stable over time whereas Variable is fluctuating according to seasonal demands.
Distinction • Permanent component reflects the need for a certain irreducible level of CA on continuous and uninterrupted basis. . the Temporary portion is needed to meet seasonal && other Temporary requirements.