1.

INTRODUCTION
Working capital is the capital invested for short term purposes i.e. for meeting day to day
operations is known as Working capital. It refers to investment in short term assets like cash,
short term securities, debtors and inventories of all types. Working capital is the investment
needed for carrying out day to day operations of the business smoothly. Maintaining enough
working capital is not that much important in the short-term but there should be sufficient
liquidity in order to make sure the existence of the business in the long-term.
Profitable business might not succeed
if it does not have enough cash flow to meet its liabilities. For that reason when businesses
formulate investment decisions they should not only consider the financial expense engaged
with obtaining the new building or new machine, etc., but should also consider other current
assets that are generally engaged with any development of activity.

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Concepts of Working Capital
There are two concepts of working capital namely Gross working capital & net working
capital. Gross working capital emphasizes on the quantitative aspect while net working capital
focuses upon Qualitative aspect.
➢ Gross Working Capital –
Acc. to this concept, company’s investment in total current asset signifies the working capital.
Gross working capital is equal to the total of all current assets (including loans & advances)of
the company. It is also known as circulating capital. There are two valid reasons for this
concept:
Gross Working Capital = Current Assets
➢ Net Working Capital –
Acc. to this concept, current assets minus current liabilities is known as Working capital. This
is a narrow concept of working capital. When current assets exceed current liabilities a
positive capital arises and when current assets are less then current liabilities, a negative
working capital arises. This concept lays emphasis on qualitative aspect which indicates the
liquidity position of the enterprise.
Net Working Capital = Current Assets – Current Liabilities
Current Assets include:-Stocks of raw materials, Work-in-progress, Finished goods, Trade
debtors, prepayments, Cash balances etc. Current Liabilities include: - Trade creditors,
accruals, taxation payable, dividends payable, short term loans etc.
NWC represents operating liquidity available to a business. Along with fixed assets such as
plant and equipment, working capital is considered a part of operating 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. The management of working capital involves managing inventories, accounts
receivable and payable and cash.

Types of Working Capital

1. Permanent Working Capital
2. Variable Working Capital
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1. Permanent Working Capital - It is the irreducible minimum amount necessary for
maintaining the circulation of current assets in the business. This is permanently locked in the
business & therefore known as permanent working capital. It refers to the minimum level of
investment in the form of current assets which is required permanently to operate at minimum
level of activity.

2. Variable Working Capital - It refers to that portion of total working capital which is needed
over and above fixed working capital. This working capital varies with seasonal changes or
abnormal conditions. It is also known as fluctuating working capital.

Working Capital Cycle

The time between the purchase of inventory items & their conversion into cash is known as
working capital or operating cycle. The working capital cycle can be defined as: The period of
time which elapses between the point at which cash begins to be expended on the production
of a product and the collection of cash from a customer Operating cycle reveals that the funds
invested in operations are recycled back into cash. The cycle takes some time to complete.
The shorter the period of operating cycle the larger will be the turnover of the funds invested
in various purposes. The operating cycle begins with the arrival of the stock & ends when the
cash is received. The cash cycle begins when the cash is paid for materials & ends when
cash is collected from receivables.

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 Order Placed Stock Arrives Finished Goods Sold
Cash Received

Raw Material Purchased

WIP Inventory Period

Accounts Receivable Period

Time

Accounts Payable Period

Invoice Received Cash Paid For Material

Operating Cycle

C
ash Cycle

WORKING CAPITAL CYCLE

2. Case Study on Anuvrat

Synthetics
I have visited in Anuvrat Synthetics in Pandri, Raipur. It is a whole sale shop of sarees.The
owner of shop is Mr.Santosh Jain. When I visited the shop, it was not very much crowded
because it was afternoon time. I asked some questions from the owner. The data provided by
him is as follows:
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• They deal in all types of sarees like silk sarees, cotton sarees, kota sarees, etc. They
have started the business in 1995.
• There Initial investment was around 8-9 lakhs
• The initial capital include both own capital and borrowings also. Loan of 4 lakhs was
taken from friends and relatives.
• The annual turnover of the firm is 4-5 crores.
• The profit percent is around 5-8%
• Goods are purchased on both cash and credit. The credit period allowed by suppliers is
45 days
• At present they have a stock of 4 crores.
• The average monthly sales of the company are around 35 lakhs per month. The sale
varies from time to time.
• Goods are sold on both cash and credit basis
• They sell good on credit only to regular customers or whom they know.
• They allow a credit period of 30 days to customers.
• If the bill is not paid on due date they sent thief staff for collection.
• They have insurance of their products. If the goods are lost or damaged during
transport. The loss is beared by the transport company.
• They place order every month
• They do no place same order every month.
• The order varies according to change in demand, change in fashion, during festivals
etc.
• They have a dead stock of around 10 lakhs at present.
• We sell the dead stock on discount and then also if the dead stock is not sold they
send it back to the manufacturer.
• They keep 5% of the capital for emergencies.

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3.Conclusion & Suggestions
They should sell goods on discount to regular customers.It will increase their sales.

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Questionnaire:
1. When did you started your business?
2. What was your initial investment?
3. It was own capital or it includes borrowings also???
4. What is you annual turnover?
5. What is your profit percent?
6. Do you purchase goods on cash or credit? If credit, then how much
credit period is allowed to you by suppliers??
7. How much stock do you maintain at present?
8. How much is your monthly sales?
9. Do you sell goods to customers on cash basis or credit basis?
10.If on credit then on what basis? Do you sell goods on credit to
everybody or you have certain criteria for it?
11.How you check credit worthiness of the person?
12.How much credit period you allow to your customers?
13.What action do you take if they do not pay the bill on due date?
14.Do you have insurance for your products?
15.In how many days you place an order?
16.Do you place the same order every month?
17.On what basis you change the order?
18.Do you have any dead stock?
19.What do you do with the dead stock u send it back to manufacturer??
20. Do you keep a percentage of capital for emergencies? If yes, How
much?