Working Capital

Management &
Financing
GROUP 1:
AHAJA, Soraya
ALFARO, Danica
ALVARADO, Khevin
 What is Working Capital Policy?

– Working capital is the amount of the firm’s current assets: cash,

accounts receivable, marketable securities, inventory and prepaid
expenses.
– The working capital policy of a company refers to the level of
investment in current assets for attaining their targeted sales. It
can be of three types namely; restricted, relaxed, and moderate.
Types of Working Capital Policy

 In restricted policy, the estimation of current assets for achieving targeted

revenue is done very aggressively without considering for any contingencies
and provisions for any unforeseen event. After deciding, these policies are
forcefully implemented in the organization without tolerating any deviations.
Also called as aggressive working capital policy.
 Relaxed policy is just the opposite of restricted policy. In this policy, the
estimation of current assets for achieving the targeted revenue is prepared after
careful consideration of uncertain events such as seasonal fluctuations, a
sudden change in the level of activities or sales etc. Also called as conservative
working capital policy.
 Moderate policy is a balance between the two policies i.e. restricted and
relaxed. It assumes characteristics of the both the policies. To strike a balance,
moderate policy assumes risk which is lower than restricted and higher than
conservative. In profitability front also, it lies between the two. The biggest
benefit of this policy is that it has reasonable assurance of smooth operation of
working operating capital cycle with moderate profitability.
What is Investment Policy?

 Accordingly, an investment policy is a document drafted

between the portfolio manager and the client.
 Provides the general goals and objectives of the client.
 Describes the strategies that the manager should employ to
meet these objectives. Specific information on matters such
as asset allocation, risk tolerance, and liquidity requirements
are included in an investment policy statement.
What dictates the investment policy to be employed in a
company?

1. Nature or Character of Business

• The working capital of a firm basically depend upon the nature of its business. It may
be said that public utility undertakings require small amount of working capital, trading
and financial firms require relatively very large amount, whereas manufacturing
undertakings require sizable working capital between these two extremes

2.Size of Business/Scale of Operations

• The working capital requirements of a concern are directly influenced by the size of its
business which may be measured in terms of scale of operations. Greater the size of a
business unit, generally larger will be the requirements of working capita
3.Manufacturing Process/Length of Production Cycle
• Working capital increase is directly proportional to the length of manufacturing
process
• Longer the process period of manufacture, larger is the amount of working
capital required

4.Earning Capacity and Dividend Policy

• Some firms have more earning capacity than others

• Firm that maintains a steady high rate of cash dividend irrespective of its generation
of profits needs more working capital 
5.Price Level Changes

• Rising prices will require the firm to maintain larger amount of working capital
as more funds will be required to maintain the same current assets
Real Life Sample

o Zamboanga City Electric Cooperative Inc. ( ZAMCELCO)

- Services
o Canelar Barter
- Goods/Products
Reference:
 https://efinancemanagement.com/working-capital-financing/working-capital-policy-relaxed-restricted-and-
moderate#:~:text=The%20relaxed%20policy%20has%20higher,aggressive%2C%20conservative%20and
%20hedging%20policy
 https://www.investopedia.com/terms/i/ips.asp

 https://www.yourarticlelibrary.com/accounting/working-capital-management/determination/top-13-factors-that-
determine-the-working-capital-financial-analysis/68019#:~:text=Credit%20Policy%3A,lesser%20amount%20of
%20working%20capital