This action might not be possible to undo. Are you sure you want to continue?
Aggrigate current assets and Working Capital as both interexchangeable terms. Gross Working Capital also known as ‘Circulation Capital’ or ‘Current Capital ’. There are two valid reason for this concept. First :When we consider fixed capital as the amount invested in fixed assets, than the amount invested in current assets should be considered as Working Capital. Second :Current Assets, whatever may be the sources of acquisition, are use in activities relating to day-to-day operations and their forms keep on changing. Therefore, they should be considered as Working Capital.
TECHNIQUES OF FORCASTION WORKING CAPITAL
1. 2. 3. 4. 5.
Operating Cycle Method Estimating of current Assets and current liabilities Method Cash Forcasting method Project balance Sheet Method Profit & Loss Adjustment Method
changes in price-level etc. it is necessary to adjust fir the changes in product-mix. Estimating of current Assets and current liabilities Method :- . 2. Operating Cycle Method :Under this method Working Capital is determined by (a) operating expenses will include all expenses on row materials. labour and overheads.1. While estimating these expenses. introduction of new product.
The procedures for estimating the components may be explained as under :a) Stock of Row Materials b) Stock of Work-in-Progress c) Finished Goods Stock d) Sundry Debtors e) Cash & Bank Balances f) Sundry Creditors g) Outstanding Expenses . its requirements can easily be forcasted by making the estimates of the amount of each component of current assets and current liabilities. Since the Working Capital is the excess of current assets over current liabilities.This is the traditional method of forcasting the Working Capital requirements.
a projected Balance Sheet is prepared and then Working Capital estimate is made by deducting current liabilities from current assets. On the basis of these assets and liabilities. Project balance Sheet Method :Under this method. receipt and payments expected tp flow during the future period are estimated and their difference will disclose the surpluse or deficiency. For this purpose. 3.Profit & Loss Adjustment Method :- . 5.Cash Forcasting method :This method is very much related to cash budgeting and its attempts to estimate the cash surplus or deficiency. various items of assets and liabilities (both long-term as well current) are estimated after tacking account the transactins expections for the future period.3.
Cash Balance etc .According to this method. 2. less will be the need for Working Capital because the concern may easily provide for meeting the day-to day payment out of the higher sale proceeds. Sales Volumes and Turnover of Working Capital:More the sales volumes or the concern is.Nature of the Business :This the most important factor affecting the level of Working Capital. Banking and Financial concerns have a large investments in inventories. Working Capital magnitude is ascertained by making necessary adjustment for cash inflow and outflow in the estimated profit. estimate profit is calculated first on the basis of transactions likely to take place in the future. Trading. . The Working Capital requirement differs accounting to the business. FACTORS 1.
it is felt that growing concern require more Working Capital than those which are static. 5. i. . Operating Efficiency :It is also concerned that a business concern can minimize its need for Working Capital by efficiently controlling its operating cost. Production policy :Production policies followed by the management of the business concern will have an important bearing upon the Working Capital requirements. 6.3 Credit Policy :Credit terms grants by the concern to its customers as well as credit terms granted by its supplies will also affect the Working Capital requirements. utilizing the resources optimally .. 4.e. Growth and Expantion:Although the relationship between Growth and Working Capital needs is not well recognized.