B11 – SURAJ MUDALIYAR

B37 – JUI SHINDE

B48 – RASHI TRIPATHI
B53 – JANHAVI WAYANGANKAR
FINANCIAL MANAGEMENT – III
Topic : WORKING CAPITAL FINANCE
Introduction :-

 Working capital financing is done by various modes such as trade credit , cash
credit /bank overdraft , working capital loan , purchase of bills , bank
guarantee, letter of credit , factoring , commercial paper , inter corporate
deposits, etc.
 Arrangements of working capital financing forms a major part of day to day
activities of a finance manager.
 It is a very crucial activity and requires continuous attention because working
capital is the money which keeps the day to day business operation smooth .
 Insufficient working capital may result into non-payment of certain dues on
time. Inappropriate mode of financing would result in loss of interest which
directly hits the profits of the firm .
Definition of Working Capital :-

 Working capital refers to Current Assets and Current Liabilities .

 Promoters have to make sure that adequate working capital to reach break-even
point and step up capacity utilization is available.
 It is essential that such estimates are available and resources are tied up to meet
the working capital requirements of the project.
 Net working capital is the difference between current assets and current liabilities
and is a measure of the company’s liquidity.
 In case of smaller companies , almost 63% of total net assets were devoted to
current assets.
 In case of medium companies 55% of total assets were devoted to current assets.
 In case of large companies 40% of total assets were devoted to current assets, and
current liabilities constituted almost 40% of total liabilities.
Types of Working Capital :-

1. Trade Credit
2. Cash Credit / Bank Overdraft
3. Working Capital Loans
4. Purchase / Discount of bills
Concept of working capital :

1. Gross working Capital : It refers to the firm’s investment in total current or circulating assets.
2. Net Working Capital : The term “Net Working Capital” has been defined in two different ways :
a] It is the excess of current assets over current liabilities . This is , as a matter of fact , the
most commonly accepted definition . Some people define it as only the difference between
current assets and current liabilities. The former seems to be a better definition as compared
to the latter. b] It is that portion of a firm’s current assets which is financed by long-term
funds.
3. Permanent Working Capital : This refers to that minimum amount of investment in all current
assets which is required at all times to carry out minimum level of business activities.
4. Temporary Working Capital : The amount of such working capital keeps on fluctuating from
time to time on the basis of business activities. In other words , it represents additional
current assets required at different times during the operating year.
5. Negative Working Capital : This situation occurs when the current liabilities exceed the current
assets. It is an indication of crisis to the firm.