Significance & Determinants

of
Working Capital

Presented By:
Geetanjali Shroff
MBA (4th Sem.)
Definition
 Working capital management
ensures a company has sufficient
cash flow in order to meet its short-
term debt obligations and operating
expenses”
 Working capital =
current asset

_
current liability
Current asset-
 Currentasset is an asset which is easily
converted into cash.
cash in hand
cash at bank
debtors
B/R
stock or inventory
Current liability
 Current liability consist of estimated or
accured amount , which are anticipated to
cover expenditure within a year for known
obligation.

 Current liability shows company short term

debts pay to outsiders.
Working capital cycle

Raw
cash
materials

Semi
bills Finished
goods

Finished
goods
Significance of working capital analysis

 Analysis of working capital is significant for

both management and short term creditors.

 It helps the shareholders and creditors to

determine the prospects of payment of
dividend and interest.
 The analysis of working capital help in
determining the ability of the company to
repay its current debt promptly.
Factors determining working capital

 Nature of business

 Manufacturing cycle and Time-lag in

production and sales
 Seasonal fluctuations

 Price level changes

s

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