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Working Capital

Presentation by
VICTORY group
1.Kanaiya Gadhvi 11
2.Darshan Joshi 20
3.Bharat Ahir 03
4.Mayur Jadeja 17
5.Jaimin Patel 40
6.Hardeep Jadeja 16
Introduction

Study of working capital is not only
an important part of financial management
but also are overall management of the
business concern.


Working capital is described as the
capital which is not fixed but the more
common uses of the working capital is to
consider it as the difference between the
book value of current assets and current
liabilities.
Classification of capital

Capital

Fixed Capital Working Capital
What is Working
Capital…?
Ø Working capital means current assets.

ØWorking capital is short term capital which is
required for doing routine activities of
business.

WORKING CAPITAL MANAGEMENT

Working capital management refers to the
management of current assets and current
liabilities.
1. Estimation of Current Assets Amount
a) Minimum desired cash and Bank balances
b) Inventories
Raw Materials
Work in process
Finished goods
c) Debtors
TOTAL CURRENT ASSETS
2 Estimation of Current liabilities
Creditors

b) Wages
c) Overheads
Total Current liabilities
3. Net Working Capital 1-2
Add margin for contingency
4 Net Working Capital Required
Concept of Working Capital

Net
Working
Capital
Working Capital Concepts
Gross Working Capital

total current assets of the firm

GWC = CA

Net Working Capital
Current Assets – Current
Liabilities
NWC = CA - CL
Component of Working
Capital
Working Capital

Current Assets Current Liability

Cash Bills payable

Bank Sundry Creditors

Bills Receivable Outstanding Expenses

Debtors Short term loans and advances

Stock Dividend Payable

Prepaid expenses Bank Overdraft
Accrued Income
Provision for Taxation
Types of Working Capital
WORKING CAPITAL

PERMANENT TEMPORARY
WORKING CAPITAL SEMI VARIABLE
WORKING CAPITAL WORKING CAPITAL

SEASONAL WORKING CAPITAL SPECIAL WORKING CAPITAL
Permanent Working
Capital
Working Capital

Permanent Working Capital
Amount of

Time
Temporary Working Capital

The amount of current assets that varies with

seasonal requirements.

Temporary current assets
AMOUNT

Permanent current assets

TIME
Semi Variable Working
Capital
Working Capital
Amount of

Time
Needs of Working Capital
1.Purchase of raw material & spares
2.
3.Payment of wages & salary
4.
5.Day to day expenses
6.
7.Provide credit obligations
Fa cto rs D e te rm in in g W C
Fa cto rs:
1 . Nature of Business
Manufacturing and trading enterprises
require fairly large amount of working
capital , while
Service enterprises and hotels and
restaurants need to carry less Working
capital

2. Production Cycle
The longer the production cycle, the
larger the WC need.
Fa cto rs D e te rm in in g W C
3 . Business cycle
During boom conditions the need for WC requirement is
larger
During recessionary conditions the need for WC is low
due to low volume of sales and production
4.
5 . Credit Policy
Liberal credit policy to customers increase the
need for WC
5.
6 . Growth and Expansion
Growth industries and firms require more WC
6.
7 . Availability of raw materials
A firm require adequate level of inventory of raw
materials, which increase the need for WC
Fa cto rs D e te rm in in g W C
7. Production Policy :
If the company maintains the continues production
policy, there is a need of regular WC

8. Earning Capacity :
high level of earning capacity, they can generate
more WC
T h e O p e ra tin g C ycle
The Operating Cycle (OC) is the time between ordering
materials and collecting cash from receivables.
R

D W

F

Raw material ( R)
Work in Process ( W)
Finished goods (F) O= R+W+F+D-C
Debtor collection stage (D)
Creditors payment stage (C)
. .
… .
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