PRESENTED BY:

ADITYA GUJARE
Concept and design
PB48
AKASH DHADVE
of working capital,
PB49
AJAY SAW PB44
Types of working
MEHUL MITKARI
PB45
capital and Sources
PRAHARSH SHAH
PB46
of Working Capital.
Subject Professor:-Brijesh Patil
ABHAY DUBEY PB47
Content:
•Introduction to Working Capital.
•Concept of Working Capital.
•Design of Working Capital.
•Types of Working Capital.
•Sources of Working Capital.
•Working Capital Balance Sheet concerned to manufacturing and trading of a company.
•Real-Time example of APL Apollo Pipes LTD.
•Terms used.
•Recommendation.
•Conclusion.
Working oWorking capital typically means the firm’s holding of current
Capital or short-term assets such as cash, receivables, inventory and
Introduction marketable securities. Funds thus, invested in current assets
keep revolving fast and are constantly converted into cash
and this cash flow out again in exchange of other current
assets.
oThese items are also referred to as revolving or circulating
capital or short-term capital.
OR
oWorking capital is capital which is required to meet day to
day expenses of business.
Definition Working capital, is the difference between a company’s 
of Working current assets (cash, accounts receivable/customers’ unpaid
bills, inventories of raw materials and finished goods) and its 
Capital current liabilities, such as accounts payable and debts.
 There are two possible interpretations of working capital
concept:
1. Balance sheet concept
Concept of 2. Operating cycle concept
Working There are two interpretations of working capital under the
Capital balance sheet concept.
1. Gross working capital (GWC)
2. Net working capital (NWC)
 Operating Cycle may be defined as the time duration starting
from the procurement of raw materials or goods and ending
with sales realization .

Operating Operating Cycle of a firm consists of the time requirement

for the completion of the following activities.
cycle 1. Procurement of raw material
concept 2. Conversion of raw into goods
3. Distribution of goods
4. Sale of ods(C Cash or Credit )
5. Conversion of receivables into Cash
 •Gross Operating cycle = RMCP + WICP + FGCP + RCP
•Net Working Capital = Gross Working Capital - Payable
deferral period
Operating Where,
cycle RMCP - Raw material Conversion Period
concept WIPCP - Work in progress conversion period
FGCP- Finished goods conversion period
RCP - Re Receivables Conversion period
 The operating
cycle of a
manufacturing
company involves
three phases:

Acquisition of resources such as raw

material, labuor, power and fuel etc.
Manufacture of the product which
includes conversion of raw material
into work-in- progress into finished
goods.
Sale of the product either for cash
or on credit . Credit sales create
account receivable for collection.
Cycle of
Concept
of
working
capital
 Concept of
working capital
Gross working capital
(GWC)
GWC refers to the firm's
total investment in current
assets.
GWC focuses on
Optimization of
investment in current
Financing of current assets
Net working capital (NWC)
NWC refers to the
difference between
current assets and current
liabilities(CL).
NWC focuses on
Liquidity position of the
firm
Judicious mix of short
term and long-term
financing.
NWC can be positive or
negative .
Positive NWC = CA > CL
Negative NWC = CA < CL
 Trade Receivables

Inventory
Design of
working
capital
Cash and Bank Balances

Trade Payables
TYPES OF
WORKING
CAPITAL
 Gross Working Capital:
Gross working capital refers to the amount of funds
invested in vari­ous components of current assets. It
consists of raw materials, work in progress, debtors,
finished goods, etc.
Basis of Net Working Capital:
Concept The excess of current assets over current liabilities is
known as Net working capital. The principal objective
here is to learn the composition and magnitude of
current assets required to meet current liabilities.
 Permanent/Fixed Working Capital:
The minimum amount of working capital which even
required dur­ing the dullest season of the year is known
as Permanent working capital.
Temporary or Variable Working Capital:
Basis of It represents the additional current assets required at
time different times during the operating year to meet
additional inventory, extra cash, etc. Temporary working
capital is fluctuating during the operating period . It is
needed for shorter period.
 It can be said that Permanent working capital
represents minimum amount of the current assets
required throughout the year for normal production
whereas Temporary working capital is the addi­tional
capital required at different time of the year to finance
the fluctuations in production due to seasonal change.
A firm having constant annual production will also
have constant Permanent work­ing capital and only
Variable working capital changes due to change in
production caused by seasonal changes. (See Figure
7.1.).

Similarly, a growth firm is the firm having unutilized

capacity, however, production and operation
continues to grow naturally. As its volume of
production rises with the passage of time so also does
the quantum of the Permanent working capital. (See
Figure 7.2.)
 Seasonal Variable Working Capital
This refers to the increased amount of working capital a
business needs during the peak season of the year. A
business may even have to borrow funds to meet its
working capital needs. Such a working capital
Temporary specifically meets the demands of business having a
seasonal nature.
or Variable Special Variable Working Capital
Working Supplementary working capital may also be required by
Capital a business to undertake exceptional operations or
unforeseen circumstances. The capital required for such
circumstances is termed as special variable working
capital. Funds needed to finance marketing campaigns,
unforeseen events like accidental fires, floods, etc.
 Regular Working Capital
This is defined as the least amount of capital required
by a business to fund its day-to-day operations of a
business. Examples include payment of salaries and
wages and overhead expenses for the processing of raw
materials.
Reserve Margin Working Capital
Permanent/Fixed
Working Capital Apart from day-to-day activities, a business may need
some amount of capital for unforeseen circumstances.
Reserve Margin Working Capital is nothing, but the
amount of capital kept aside apart from the regular
working capital. These pool of funds are kept separately
for unforeseen circumstances such as strikes, natural
calamities, etc.
Sources of SPONTANEOUS
SOURCES
SHORT
TERM
SHORT
TERM
LONG TERM
SOURCES
LONG TERM
SOURCES

Working SOURCES SOURCES

Capital Internal Sour

ces
External Sour
ces
Internal Sources External Sources

Trade Credit Tax Provisions Bank Retained Profits Debentures

Overdraft

Sundry Creditors Dividend Trade Depreciation Share Capital

Provisions Deposits Provision

Bills Payable Public Long Term Loans

Deposits

Notes Payable Bills Discounti

ng

Accrued Expenses Short Term

Loans
 The word ‘spontaneous’ itself explains that this source
of working capital is readily or easily available to the
business in the normal course of business affairs. The
quantum and terms of this credit depend on the
Spontaneous industry norms and the relationship between buyer and
Sources of seller.
Working These sources include trade credit allowed by the
sundry creditors, credit from employees, and other
Capital trade-related credits.
The biggest benefit of spontaneous sources as working
capital is its ‘effortless raising’ and ‘insignificant cost’
compared to traditional ways of financing.
 Short-term working capital finance availed from banks
and financial institutions are costly compared to
spontaneous and long-term sources in terms of rate of
interest but have a great time flexibility.

Short Term Short term sources can be further divided into internal
and external
Short-term sources
Internal of working Short-term
Sources capital finance. 
External Sources
Sources of
Working Tax Provisions Bank Overdrafts

Capital Dividend Provisions Cash Credits

Trade Deposits

Bills Discounting

Short-term Loans or 

Working Capital Loans
Inter-corporate Loans,
Commercial Paper, etc.
 Long-term external sources of finance like share capital
is a cheaper source of finance but are not commonly used
for working capital finance.
Long-term sources can also be divided into internal and
external sources.
Long-Term
Sources of Long-term Long-term
Working Internal Sources External Sources

Capital Retained Profits Share Capital

Provision for Depreciation Long-term Loan

Debentures
MANUFACTURING CONCERN TRADING CONCERN
 oAmong the 3 top manufacturer of the steel tubes, pipes and
hollow sections in India.
oDelhi based with 5 manufacturing location at northern,
southern and western part of the India with installed
capacities 1/2 Million MTPA.
Example : oDespite a slowdown in the Indian economy Company has
APL Apollo recorded a gross sales growth of 56% over - 11 , EBIDTA
growth of 26.19% and net profit growth of 13.83%.
pipes Ltd. oIntends to double production capacity to a million tones per
annum by 2015 and generating revenues worth US$1 billion .
oPlan to increase presence in new geographies including Tier
2 and Tier 3 cities.
Working Capital Cycle
APL APOLLO Tubes LTD. Other Tubes Industry
30days

40 days

60 days 60 days

44 days 34 days
30 days
30 days
OPERATING CYCLE IN NUMBER OF CURRENT RATIO-GRAPHICAL
DAYS ANALYSIS
Analysis of Peer Companies
Analysis of Peer Companies
 PBT-Profit Before Tax.
CL-Current Liabilities.
CR-Current Ratio.
CA-Current Assets.
OPBIT-Operating Profit Before Interest and Taxes.

Terms used: PAT-Profit After Tax.

OPBDIT-Operating Profit Before Depreciation,
Interest and Tax.
ICRA- Investment Information and Credit Rating
Agency of India Limited.
 oThe company should increase its creditors cycle to 60 days
as per the industry benchmark .
oThe company can also look for channel financing through
contractual arrangement with its present lender.
oThe company should reduce its inventory through efficient
Recommendation supply chain management.
oThe company should also explore the possibilities of
factoring keeping in mind the factoring cost ( both recourse
and nonrecourse) vis a vis collection cost and bad debt as a
percentage of sale.
oThe company has improved its rating from LBBB+ to A- ( long
term) as per recent ICRA rating.
 oHaving positive working capital is a sign of good short term
financial health and good liquidity. It means that the company
has enough funds to cover for its short-term obligations.
oIf the working capital is increasing it might lead to more
borrowing and need to raise more money.
oOn the other hand, negatively working capital may mean that
Conclusion assets are not being used effectively and the organization
might be going through a liquidity crisis. However, having
negative working capital is not always a bad sign.
oThe small firms should ensure a good synchronization of its
assets and liabilities .
References:
•https://www.educba.com/working-capital-example/
•https://efinancemanagement.com/working-capital-financing/sources-of-working-capital
•https://www.accountingnotes.net/working-capital/working-capital-definition-classification-and-
sources/7007
•https://www.en-investopedia.com/types-of-working-capital/
•https://www.gargshashi.com/2019/05/concept-of-working-capital.html
•https://www.preservearticles.com/management/working-capital-8-sources-of-working-capital-fi
nance-explained/30499
•https://www.bajajfinserv.in/what-is-working-capital
Thank You.