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GEMEN T 201011 .

Working Capital Managem .









Pg no. ➢ Company Profile3 ➢ Working Capital .

Management 4 • • Meaning Factors Affecting .

working capital • Working capital cycle ➢ .

Working capital management 6 ➢ .

Kinds of Working capital8 ➢ Inventory management at Dlf 13 .


4 ➢ Methods used for inventory control15 ➢ .

Cash management at dlf 15 ➢ Receivable management at dlf 16 .

➢ Key working capital ratios17 ➢ Interpretatio n of ratios19 ➢ .

Calculation of working capital24 • Current asset holding period .

• Ratio to sales • Ratio to fixed investment .


For .



FINANC E(DLF) DLF Limited or DLF (Delhi Land and Finance) is the .

India'sbiggestr eal estate developerbased in New Delhi. India. The DLFGroup was founded .

by Raghuvendra Singh in 1946. DLF developedresid ential colonies in Delhi such .

.as Shivaji Park ( which wasactually its first one). Rajouri Garden. Krishna Nagar.

with .SouthExtensio n. Greater Kailash. In1957. Kailash Colony and Hauz Khas.

the passage of Delhi Development Act. the localgovernme nt assumed control of real .

estate development in Delhiand banned private real estate developers.As a result DLF .

began acquiring land at relatively low cost outsidethe area controlled by the Delhi .

in the adjacent state of Haryana.Development Authority. In the mid-1970s. in thedistrict of Gurgaon . .

Its upcomingplani .the company started developing DLF City project atGurgaon.

in frastructureand special economic zones.ncludehotels.related development projects. • .

focusing on .In this report I have highlighted the (working capital manag ement of DLF) .

cash management. inventoryma .different components of working capital like.

Various necessary ratios have been .nagement etc.



• .6 calculated in order to analyze the financial stability of thecompany.

Thereafter the working capital requirement of overall DLF hasbeen calculated. .

After that analysis of working capital hasbeen done. WORKING CAPITAL .


.sundry debtors.Working capital refers to the funds invested in current assets i.e.

cash & bank balance and other currentassets. the .inventories. In other words.

.fund requires supporting day to dayoperations such as purchase of raw materials.

payments of wagesand defraying other expenses for operations FACTORS AFFECTING .

WORKING CAPITAL REQUIREME NTSNature of business : The nature of business .

influences to a greatextent the amount of working capital to be required to .

run thebusiness. Size of business : Large business requires large .

amount of working capital than a small business where operations .

arerelatively less. though they engaged in the same type of businessoperat ions. .



7 Production policy : The need for working capital will varyaccording .

to production plans. Operating efficiency : Optimum utilization of resources .

atminimum costs as a result of which profitability increases. It helpsin increasing .

Credit policy .generation of internal funds which reduces thepressure on working capital.

.: The credit policy of the firm also determines theworking capital requirement.

Supply of raw materials : If supply of raw materials is regularthen there is no necessary to

maintain a huge level of inventory &no blocking of working capital unnecessarily.

Market Conditions: Working Capital requirements are alsoaffected

by market conditions like degree of competition. Condition of supply:

The inventory of raw materials. sparesand stores depends on the .

Dividend Policy: Dividend policies affect .conditions of supply.

Growth and Expansion: Growth and expansion of a firmrequires .Working Capital.

adequate working capital. Abnormal Factors: Working Capital .

.requirement is also affectedby the abnormal factors like strikes.

inflationary .lockout.



1. around and . Working Capital Cycle Cash flows in a cycle into.8 conditions etc.

It is thebusiness's life blood and every manager's primary task is .out of a business.

If abusiness is .to helpkeep it flowing and to use the cash flow to generate profits.

operating profitably. then it should. generatecash surpluses. If it doesn't . in theory.

generate surpluses. the business willeventually run out of cash and expire. The .

faster a business expands the more cash it will need forworking capital and .

investment. The cheapest and best sources of cash exist as working capital right .

Goodmanage ment of working capital will generate cash .within business.

will helpimprove profits and reduce risks. The business should bear in mindthat the .

cost of providing credit to customers and holding stockscan represent a .

substantial proportion of a firm's total profits. There are two elements in the business .

cycle that absorb cash Inventory (stocks and work-inprogress) and Receivables .

The main sources of cash are Payables .(debtors owing you money).

(your creditors) and Equity and Loans . .




capital management refers to the managementef forts for optimizing the working .

capital and improving theproductivit y of the short term capital invested in the Business. .

Itincludes decisions relating to working capital and short termfinancing .

and involves managing the relationship between a firm'sshortterm assetsand itsshort-term .

The goal of working capital management is to ensure that the firm is able .liabilities.

to continueand that it has sufficient cash flow to satisfy both maturing short-term debt and upcoming .

operational expenses. .


10 • Cash managementIdentify the cash balance which allowsfor the .

but reducescash holding costs. • .business to meet day to day expenses.

Identify the level of inventorywhic h allows for uninterrupted .Inventory management .

production but reduces theinvestment in raw materials .and minimizes reordering .

and hence increases cash flow. • Debtor’s management .costs.

e. .. i.Identify the appropriatecre dit policy. credit terms which will attract customers.

such thatany impact on cash flows and the cash conversion cycle willbe offset by .

seeDiscounts and allowances. .increased revenue and hence Return on Capital(or vice versa ).

• Short term financing . given the cash .Identify the appropriate source of financing.

.conversion cycle: the inventory isideally financed by credit granted by the supplier.

or to"convert .however. itmay be necessary to utilize a bankloan(or overdraft).

.debtors to cash" through "factoring".


11 • Managing payables Creditors are a vital part of effectivecash management .

KIND S OF .and should be managed carefully toenhance the cash position.

WORKING CAPITAL Kinds of working capital are shown in the following chart:- .

CONCEPTS OF WORKING CAPITAL The concept of Working Capital .

includes Current Assets andCurrent Liabilities both. There are two concepts .

.of Working Capitalthey are Gross and Net Working Capital.1.

Gross Working Capital : Gross Working Capital refers to thefirm's .

which can be . Current Assets are the assets.investment in Current Assets.

It includes cash.converted into cash within an accounting year oroperating cycle. .

bills receivables .short-term securities. debtors(accou nt receivables or book debts).

.and stock(inventor y).





Net Working Capital: Net Working Capital refers to thedifference .12 2.

between Current Assets and Current Liabilities are thoseclaims of outsiders. which are .

expected to mature for paymentwithi n an accounting year. It includes .

creditors or accountspaya bles. bills payables and outstanding expenses. Net Workingcapita .

A positive Net Working Capitalwill arise when .l can be positive or negative.

working .Current Assets exceed Current Liabilities and viceversa.On the basis of TIME.

capital may be classified as: ➢ Permanent Working Capital .Permanent or fixed .

workingcapita l is the minimum amount which is required to ensureeffectiv e utilization of .

fixed facilities and for maintaining thecirculation of current assets. As the business .

grows, therequirement s of permanent working capital also increases due othe increase

in current assets. The permanent working capital can further be classified

asregular workingCapital . Working capital required to ensure circulation of

currentassets from cash to inventories, from inventories to receivablesand from

receivables to cash and so on is known as regular .



13 working capital. Reserve working capital is the excess amountover .

the requirement for regular working capital which may beprovided for .

contingencies that may arise at unstated periodssuch as strikes. rise in prices.etc. . depression .

it is required bythe enterprise to carry out its normal business operations. ➢ .

Temporary orvariable working .Temporary or Variable Working Capital .

capital is the amount of working capital whichis required to meet the seasonal .

demands and some specialexigenc ies. Variable working capital can be further .

classified asseasonal working capital and special working capital. Most .

of theenterprises have to provide additional working capital to .

The capital required to meet theseasonal .meetthe seasonal and special needs.

needs of the enterprise is called seasonal workingcapital .Special working .

capital is that part of working capital which isrequired to meet special exigencies .

such as launching of extensive marketing campaigns for conducting research. .





14 Temporary working capital differs from permanent working capitalin the .

sense that it is required for short periods and cannot bepermanently employed .

OBJECTIVES OF WORKING CAPITAL .gainfully in the business.

It is neededfor following .Every business needs some amount of working capital.

• To .• To pay wages and salaries. components and spares.purposes-• For the purchase of raw materials.

• .power. and office expenses etc.incur day to day expenses and overhead costs such as fuel.

ADVANTAG ES .To provide credit facilities to customers etc.

• It helps the business concern in maintaining the goodwill.• It can arrange loans .

from banks and others on easy andfavorable terms.• It enables a concern to .

face business crisis in emergencies suchas depression.• It creates an environment .

confidence.• It helps in .of security. and overallefficien cy in a business.

maintaining solvency of the business. ADEQUACY OF WORKING CAPITAL .



It should neither beexcessive .15 A firm must have adequate working capital.

nor inadequate. Excessive working capital is a situationwhere in the firm .

Theseexcessive or idle funds .invests excessive funds in working capital.

earn no profit for the firm. DANGERS OF EXCESS WORKING CAPITAL • .

It may result in unnecessary accumulation of inventory whichmay lead to increase in wastage due to .

There is . • It is an indication of defective credit policy. theft etc.mishandling.

thepossibility of higher incidence of bad debts. • It may lead to complacency in managing .

day-to-day expensesof the firm. • Executives may be tempted to spend more .

.• Excessive working capital means idle funds which earns noprofit for the business.

and thus cannot earn proper rate of return on its investments. • It may result into overall .

inefficiency in the organizations. • When there is excessive working capital .

.relation with banksand other financial institutions may not be maintained.


16 • The redundant working capital gives rise to .

speculativetra nsactions. • Due to low rate of return on investments the value of .

sharesmay also fall. • In case of redundant working capital there is always a .

chanceof financing long term assets from short term funds which isvery harmful in long .

run for any organizationIn adequate working capital is a situation where in the .

firmdoes not have sufficient funds to meet day to day runningexpen ses. This .

ultimately results in interruption in theproduction process. .


creep in when it becomes difficult of meet day-today commitments. • .

It becomes difficult to implement operating plans and achievefirm’s targets. • .

It directly affects firm’s liquidity position and the firm may findit difficult to honor short- .

term obligations. .



17 • It cannot by its requirements in bulk and cannot avail of discounts it .

• It becomes difficult for the firm to exploit favorable .stagnates growth.

marketconditi ons and undertake profitable projects due to nonavailability .

of working capital funds. • It becomes impossible to utilize efficiently the fixed .

assetsdue to non availability of liquid funds thus the firm’sprofitab .

ii) SIGNIFICAN CE OF WORKING CAPITAL .ility would deteriorate.


inventory in production is a dominantdete rminant of working capital .

It holds muchimportan t in context of DLF as it is having a long production .management.

work in progress .cyclewhere a good amount of capital is tied up in form of raw material.

and conversion cost. Production planning andcontrol department

plays a pivotal role in inventory management. The engineering department

plays a supporting role and providesthe

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