WORKING CAPITAL MANAGEMENT

Arpit.W.Gajbhiye 3rd Sem Beta DMIMS

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OBJECTIVES

Every business needs some amount of working capital. It is needed for following purposes For the purchase of raw materials, components and spares. To pay wages and salaries. To incur day to day expenses and overhead costs such as fuel, power, and office expenses etc. To provide credit facilities to customers etc.

Factors that determine working capital

The working capital requirement of a concern depend upon a large number of factors such as Size of business Nature of character of business. Seasonal variations working capital cycle Operating efficiency Profit level. Other factors.
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Sources of working capital:

The working capital requirements should be met both from short term as well as long term sources of funds. Financing of working capital through short term sources of funds has the benefits of lower cost and establishing close relationship with banks. Financing of working capital through long term sources provides the benefits of reduces risk and increases liquidity

Types of working capital

Working capital an be divided into two categoriesPermanent working capital It refers to that minimum amount of investment in all current assets which is required at all times to carry out minimum level of business activities. Temporary working capital: The amount of such working capital keeps on fluctuating from time to time on the basis of business activities.

COMPANY PROFILE
KGN Enterprises, established in the year 1998, primarily as a service provider. Now gradually achieving milestones in its over a decade journey has become, proudly an efficient, Techno-savy Expert Organization in the field of Infrastructure Developer for Telecommunication Giants. KGN Enterprises is associated with M/s. TATA Teleservices (Maharashtra) Limited and M/s. TATA Communications Ltd., (formerly VSNL).

NET WORKING CAPITAL

Net working capital is not a ratio, it is calculated to measure the companys liquidity position. It is calculated to see whether the company has sufficient net working capital in order to meet the claims of creditor and to meet the day to day needs of business. Formula = Current assets Current liability

CURRENT RATIO
To indicate the rupee of current assets available for each rupee of current liability. It is been calculated to measure its ability to meet short term obligations. Current assets Formula = ----------------------Current liability

DEBTORS TURNOVER RATIO

This ratio has been calculated to study the measures of how rapidly debts are collected from debtors of the business. Credit Sales Formula = -----------------------Average Debtors

ACID/QUICK RATIO
This ratio has been calculated to see the measurement of companys ability to convert its current assets into cash immediately to meet its day to day business. In this ratio, inventory of the company is not taken into calculation Current assets Stocks (Inventory) Quick/Acid ratio = -------------------------------------------------Current liabilities Bank O/d
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AVERAGE COLLECTION PERIOD

The ratio helps to measure how quickly receivables or debtors are converted into cash. It also measures the quality of the debtors since it indicates the speed of their collection period. Month/Days Formula = -------------------------------------Debtors turnover ratio

INVENTORY TURNOVER RATIO

The inventory turnover ratio is calculated to indicate and study how fast the inventory of raw material is converted into finished goods. The ratio gives the information about the days of holding the inventory in raw material form. Sales Formula = ------------------------------------Average Inventory Average Inventory = (Opening Stock Closing Stock)/2
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INVENTORY HOLDING PERIOD

The company calculates the inventory holding ratio to indicate the average days of holding or storing inventory before it is converted into finished good. The ratio also indicates the average day of investment invested in inventory. 365 Formula = ----------------------------------------------------Inventory turnover ratio

ASSET TURNOVER RATIO

This ratio measures the per rupee sales generated by per rupee of tangible assets maintained by the firm. Sales Formula = ----------------------------------Total Assets
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RAW MATERIAL TURNOVER RATIO

The raw material turnover ratio examines the efficiency of the company to convert raw material into work in progress or into finished goods. The ratio indicated the level of raw material inventory converted into goods. Cost of raw material used Formula = -----------------------------------------------------Average raw material inventory

CURRENT ASSETS TURNOVER RATIO

Form current assets turnover ratio the company gets to know the efficiency of utilizing its current assets in day to day business. Sales Formula = -----------------------------------------Current assets
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WORKING CAPITAL TURNOVER RATIO

The working capital turnover is calculated to study the working capital required by the company for producing one rupee of sales. Sales Formula = ------------------------------Net Working Capital

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CONCLUSION
After analyzing and studying the performance of working capital of KGN for the period of 5 years it can be said that the company has a satisfactory holding of short term as well as long term capital. KGN is observing various ratios and implementing them its practice of financial management. The current assets of KGN are optimum and properly managed to meet its current liabilities as well as day to day expenses.

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Thank you !

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