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WORKING CAPITAL
MANAGEMENT
PRESENTED BY:-
Priyanka Garale-15
Ankita Patil- 07Salma Qureshi- 23
Mitali Goregoankar- 22
Sachin Nagargoje-42
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What is a capital
Cash or goods used to
generate income either
by investing in a
business or differentincome property.
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Two types of capital
1. Fixed capital:Fixed assets are to be used in business for longer
period and capital invested in such acquisitions are
called as fixed capital.
2. Working capital:
Capital essential for short term purposes & capitalinvested for such purposes are called as working
capital.
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What is working capital.???
Working capital typically
means the firms holding of
current or short-term assets
such as cash, inventory andmarketable securities.
The capital of a business that isused in day to day operations.
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Funds invested in current assets keep revolving fast
and are constantly converted into cash.
This cash flow out again in exchange for other
current assets.
Working Capital is also known as revolving or
circulating capital or short-term capital.
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How working capital iscalculated???
Working capital= current assetscurrent liabilities
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STATEMENT OF WORKIG CAPITALParticulars Amount (Rs.)
CURRENT ASSESTS
i) Stock of raw materials XX
ii) Work in progress XX
iii) Stock of finished goods XX
iv) Sundry debtors XX
v) Payments in advance XX
vi) Balance of cash of daily expenses XX
vii) Any other item XX
LESS: CURRENT LIABILITIES
i) Creditors XXii) Lag in payment of expenses XX
iii) Any other item XX
WORKING CAPITAL ( C.ACL) XXX
Add : provision / margin for contingencies XX
NET WORKING CAPITAL REQUIRED XXX
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Effects of Excess working capital
Every business concern should have adequate working capital
to run its business operations.
It should have neither excess working capital nor inadequate of
working capital.
Both excess as well as shortage of working capital situations
are bad for any business.
However, out of the two, shortage of working capital is more
dangerous from the point of view of the firm.
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Importance of working capital
It enables the company to meet itsobligations.
Ensures the solvency of the
company.
Enables the organization to tide
over difficult periods successfully
Enhances the good will of the
company.
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Effects of inadequate working capital
Fixed Assets cannot efficiently and effectively beutilized on account of lack of sufficient workingcapital.
Low liquidity position may lead to liquidation of
firm.
Credit worthiness of the firm may be damaged.
It may not be able to take advantages of cashdiscount.
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Factors determining working capital
requirement
Nature of business
Production policies
Size of the business unit
Terms of purchases & sales
Turnover of inventories
Turnover of circulating capital
Business cycle
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Working capital cycle
Cash flows in a cycle into, around and out of a
business
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There are two elements in the business cycle that
absorb cash - Inventory (stocks and work-in-
progress) and Receivables (debtors owing you
money).
The main sources of cash are Payables (yourcreditors) and Equity and Loans.
Each component of working capital (namely
inventory, receivables and payables) has two
dimensions ........TIME ......... and MONEY
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Working capital management
Working capital management is concerned with the problemsthat arise while managing current assets, current liabilities, and
inter-relationship that exists between them.
1. Current assets: In ordinary course of business, can be
converted into cash within one year without undergoing any
diminution in value. E.g., cash, marketable securities, accounts
receivable, and inventory
2. Fixed assets: Permanent in nature and are held for use in
business activities. E.g., land, building, machinery etc.
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3. Current liabilities: Obligations that have to be paid in a single
accounting period. E.g., accounts payable, bills receivable,
bank over-draft and outstanding expenses
4. Long-term liabilities: Obligations that can be repaid over a
period greater than a single accounting period. E.g., share
capital, debentures, long-term loans etc.
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Every firm requires funds for two
purposes:
1. Long term funds are required to
create production facilities
through purchase of fixed assets
1. Short term funds are required for
the purchase of raw materials,
payment of wages, and other day-
to-day expenses.
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Sources of additional working capital
Existing cash reserves
Profits (when you secure it as cash!)
Payables (credit from suppliers)
New equity or loans from shareholders
Bank overdrafts
Long-term loans
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Objectives of working capital management
To ensure the maintenance of satisfactory level of workingcapital.
To minimize the amount of capital employed in financing thecurrent assets.
To maintain the balance between the amount of currentassets & current liabilities.
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Need of working capital in different industries
Real estate and engineering sectors involve
projects which take a long time to complete,resulting in long inventory holding periods.
The gems & jewelers industryimports rough
diamonds, and exports the polished diamondswhich translate into longer inventory andreceivable days.
The sugar and textile sectors longer workingcapital cycles are due to their dependence oncommodity-based inputs which are seasonal innature and necessitate their storage.
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Working capital management in reliance : Hisar project
Hisar is the project of reliance infrastructurelimited, India
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There are three main areas in working capitalmanagement of RIL & they are :
1.Receivables management: RIL manages itsreceivable accounts through ageing analysis
2.Cash management: RIL manages its cashthrough management information system.
3.Inventory management: Inventorymanagement is made easier through theprocess of high sea sales and sale in transit.
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Thank You