An

insight to
Working Capital Management

By:
Aarti Gonsalves (02)
Abeyson Kuriakose (03)
Aditi Awasthi (05)
Aksshat Seth (08)
Denny Thomas (35)
 Objectives
Find a street vendor/hawker & Find out :-
• Where does he gets his money from?
• How does he manage this money?
• Is there a better way of managing his
Working Capital?
Our subject of study
• the local tea shop
 About the shop
• Name : Raju Tea Stall – owned by 2 brothers
• Location : Electronic city phase 2 near Tata
BP Solar
• Description : Retail stall selling items such
as cigarettes, pan masala, coffee, tea,
biscuits, samosas, cake etc.
• Best time of the year for sales - Winter
 Customers
• Employees of Tata BP Solar
• Employees of GE
• National Cab drivers
• Infant bus drivers
• Jas Telecom Pvt. Ltd – Hosur road
• XIME students
 Terms of credit
• Majority of the business works on credit basis
• Employees of co.s are given one month credit
• Cab & Bus drivers are given 3 days credit
• XIME students – pay after every Rs. 150 balance
• A separate credit note book is maintained for this
purpose – where day to day credit transactions
are recorded
• Suppliers are paid daily in cash.
 Current Assets
Accounts Receivable
• A separate credit note book is maintained for this
purpose – where day to day credit transactions
are recorded
• Credit amount = Rs. 1200 (employees+ XIME
students) + Rs. 500 (cab drivers)
• Rs. 1700 per day.

Inventory
• There is no inventory at the end of the day.
 C.A. continued…
Cash in hand
• Sale of coffee and tea to JAS Telecom every
Monday ( 10:30 am to 3:30pm)
• Cash in hand from sale = Rs. 3000 per week
• This works out to be Rs. 430 per day which
circulates for one week in his business to
meet a part of his WC requirement.
 Total Current Assets
Total Assets
S.No. Particulars Amount
1. Cash 200
2. Debtors 1700
3. TOTAL 1900

Cash
S.No. Particulars Amount
1. Daily Cash Inflow 900
2. Cash Outflow (340)
3. Personal use and suppliers (360)
4. Balance left in Business 200
 Current liabilities
Creditors

• Money lender – Rs. 10,000

• Interest to money lender deducted from the loan
( Raju receives only Rs. 9000)
• Actual interest rate is: (1000/9000)*100=11.11%
• In addition he pays Rs. 300 a day as repayment
• Interest on loan – Rs. 34 per day .i.e. Rs.1000 for the
whole month which he pays right at the end of the
month.
 C.L. continued
Rent
• Rent of Rs. 3000 per month to Airtel
Therefore per day = 3000/30 = Rs. 100
• Since it is an unauthorized location – cost to policemen – Rs. 10
per day

Bad debts
• Over the past year he has incurred approx. Rs. 4000 as bad debts.
• Approx Rs. 12 per day
• Reason : Employees of companies shift jobs and forget about their
credit accounts with him
 Total Current Liabilities

Current Liabilities
S.No. Particulars Amount
1. Creditors 0
2. Interest Payable 34
3. Bribe 10
4. Rent 100
5. Bad Debt 12
6. TOTAL 156
 Operating Cycle
Operating Cycle for Debtors
• Employees :- 1200/(360/30) = 100 days
• Cab & Bus Drivers :- 500/(360/3) = 4 days

Operating Cycle for Creditors

• For suppliers it is ‘zero’ as he doesn’t get a credit.
• For other liabilities :- 156/(360/30) = 13 days

Net Operating Cycle = 100 + 4 - 13 = 91 days.

 Working Capital Analysis
• W.C. = Current Assets – Current Liabilities
= Rs.1900- Rs.156
= Rs.1744
• C.R. = C.A/C.L
= 1900/156
= 12
• Working Capital>Cash Sales, as most of the daily
sales is based on credit.
• Hence, there is high under trading.
 How we got the Numbers
Raw materials
• Tea & Coffee
• Milk 15 L @ 20 Rs = Rs. 300
• Sugar - 2 Kg @ 38 Rs = Rs.76
• Tea leaves – 1/4 kg @ 200 Rs = Rs.50
• Coffee powder – 110 gms@5 Rs for 6.2 gms = Rs 100
• Total :- Rs. 526
Finished Goods
• Finished goods like cigarettes, biscuits etc. costs him around Rs. 1500 or so.

So, the Grand total of costs comes out to be Rs. 2000.

 SALES
• 200 Tea : 100 full and 100 half
• 100 coffee: 50 full and 50 half
• 100 badam milk
• 20 Samosas
• Other snacks – 100 Rs
• Pan Masala – Rs.125
• Cigarettes – Rs. 675
• Toffees – Rs 100
• Biscuits – Rs. 100
Total : Rs. 2610
 Profit & Loss A/C
S.No. Particulars Amount
1. Total Sales 2610

2. Cost (2000)

3. Interst (34)

4. Tax (10)

5. Bad Debts (12)

5. Rent (100)

6. Principal Repayment Cost (300)

7. PROFIT 154
 Observations
• No credit facility from suppliers , but his customers
enjoy a long credit period, not good, so he needs
working capital to fund –loan.
• He however has no other option as if he doesn’t offer
credit facility then he loses his customers to ‘Hot n
cool’.
• Employees/ XIME students like to come out for a
smoke/tea break without worrying about bringing
their wallets.
• CREDIT is a necessity, as people tend to buy more
on credit than when they have to pay in cash.
 Suggestions
• Way to reduce bad debts (4000 for the last year)?...shift
collection to the middle of the month.
• Bank rate or money lender rate?
Banks like Union Bank of India provide loans to Hawkers with
interest rates ranging from 9.3%-12%. With the location he has
we don’t think the bank will charge him a high rate.
• Get more big companies as his clients as they always pay in
cash.
• Reduce the credit period of employees to 15 days or less, if
drivers can pay in 3, so can they.
• In order to avoid any price increase in times of inflation, he can
sell tea/coffee in smaller cups at same prices.
Thank You