Group members

Pg 17- ashish keshari Pg 24- sunita nair Pg 26- madura pisal Pg 31- avadhesh viswakarma

CONTENTS
Introduction

Positive and negative working capital Projection of working capital requirements Role of regulatory authorities

WORKING CAPITAL
Definition : Working capital represents that portion of capital which circulates from one form to another in the ordinary conduct of business. Working capital means the funds (capital) available and used for day to day operations ( working) of an enterprise. Example : The differences between current assets and current liability will be known as working capital. CURRENT ASSETS CURRENT LIABLITIES

Objectives of working capital

1. Stimulate sales by offering customers credit (accounts receivable) and ready goods for sale (inventory) Increase Profits Minimize costs by balancing production and sales levels through inventory Increase Profits Secure low cost financing Increase Profits Reach above 3 goals but never run out of cash by having enough cash and marketable securities on hand and/or by limiting use of short-term debt

2. 3. 4.

IMPORTANCE
Continuous monitor and control on current assets and current liability Synchronize the production and sales activity Proper and efficient management of sales volume Create an indicator for solvency Responsiveness in order to variation in sales Secure and continuous production

Component of working capital

Current assets refers to those assets that are used in course of business operation and converted into cash with in a years time . Example Inventories, bills receivable, loans and advances etc Current liabilities refers to those liabilities which the concern owes to others and are to be repaid with in a short period of time i.e. less than a year Example Bills payable, advances from customers etc

SINGNIFICANCE OF WORKING CAPITAL MANAGEMENT

In a typical manufacturing firm, current assets exceed onehalf of total assets. Excessive levels can result in a substandard Return on Investment (ROI). Current liabilities are the principal source of external financing for small firms. Requires continuous, day-to-day managerial supervision. Working capital management affects the companys risk, return, and share price.

WORKING Capital CYCLE

Accounts Payable

Value Addition

Raw Materials

WIP

Cash

THE WORKING CAPITAL CYCLE (OPERATING CYCLE)

Finished Goods

Accounts Receivable

SALES

Working capital
Positive working capital
It means that your current assets are more than your current liability and you should not hope that your working capital will increase due to loss

Negative working capital

The state where a company is basically operating with no capital because the company's liabilities exceed the available assets.

KINDS OF WORKING CAPITAL

1.Permanent working capital: Permanent working capital is the minimum amount of current assets, which is needed to conduct a business even during the dullest season of the year. The minimum level of current assets is called permanent or fixed working capital as this part is permanently blocked in current assets. Characteristics of Permanent working capital It is classified on the basis of the time period It constantly changes from one asset to another and continues to remain in the business process. Its size increase with the growth of business operations .

PERMANENT WORKING CAPITAL

CONT
2.Temporary working capital:
Temporary working capital represents a certain amount of fluctuations in the total current assets during a short period. Variable working capital is the amount of additional current asset that are required to meet the seasonal needs of a firm, so is also called as the seasonal working capital.

Characteristics of Temporary working capital

It is not always gainfully employed, though it may change from one asset to another asset, as permanent working capital does. It is particularly suited to business of a seasonal or cyclical nature.

TEMPORARY WORKING CAPITAL

Projection of working capital

Particular
Current Assets
Inventories: Raw material Work in process Finished goods Sundry Debtors(amount invested in Debtor) Cash in hand/Bank Prepaid expenses Advances payment to creditors Total current assets(A)
Current liabilities: Creditors for purchases Creditors for expenses/overheads Outstanding wages

Rs.

Rs.

Total current liabilities(B)

Working capital(A)-(B) Reserve for contingencies Working capital required

SOME IMPORTANT FORMULAS

NAME Raw material and storage period (R) Work in process period (W) CONSIST
Average stock of raw materials and stores

Average raw materials and stores consumption per day

Average work in process inventory Average cost of goods sold per day

Finished goods inventory (F) Debtors collection period (D) Creditors payment period (C)

Average finished goods inventor Average cost of goods sold per day Average book debts Average credit sales per day Average trade creditors Average credit purchase per day

ACTIONS OF RBI IN WORKING CAPITAL REQUIREMENTS Norms of inventories and receivables Coverage Methods of borrowing Style of credit Information system

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