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Working Capital Management
 

Working Capital Management

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    Working Capital Management Working Capital Management Presentation Transcript

    • LIQUIDITY DECISIONS/ WORKING CAPITAL MANAGEMENT
    • Meaning “ The excess of current assets over currents liabilities” also known as circulating, revolving or fluctuating capital
      • Components of wc
      current liabilities current assets Taxes & dividends payable Inventory of raw materials, Stores & spares, FG Advances received Receivables Short term borrowings Short term advances Outstanding expenses Temporary investments Creditors Cash & bank balances
    • TYPES
      • Gross working capital & net working capital
      • Permanent working & temporary working capital
      • Positive working & negative working capital
      • Balance sheet working cap & cash working cap
      • Methods of estimating working capital .
      • Conventional method -
      • cash inflows & cash outflows are matched together. Emphasis is on liquidity & its ratios.
      • Operating cycle method
      • It considers the production and other business operations.
      • It emphasis on profitability & liquidity of the firm
    • Factors determining WC requirements
              • Nature of business 11. Growth of business
              • Manufacturing cycle 12. Market conditions
              • Production process 13. Supply situations
              • Business cycle 14. Environment factors
              • Seasonal variations
              • Scale of operations
              • Inventory policy
              • Credit policy
              • Accessibility of credit
              • Business standing
    • Working capital management
      • Working capital management refers to the management of working capital with twin objectives of Liquidity & profitability.
      • Working capital management establishes the best possible trade-off between the profitability of net current assets employed and the ability to pay current liabilities as they fall due.
      • Objectives:
      • Optimize investments in current assets.
      • To see that the company meets its current liabilities obligations
      • Manage current assets to see that the return on current assets is more than cost of capital
      • Proper balance between current assets & current liabilities
    • Components of WCM
      • INVENTORY MANAGEMENT
      • CASH MANAGEMENT
      • RECEIVABLES MANAGEGMENT
    • INVENTORY MANAGEMENT
      • Meaning-
      • Objectives-
        • For continuous supply for uninterrupted production
        • To reduce wastage & losses
        • To introduce scientific inventory management techniques
        • To reduce cost of purchase & storage
        • To reduce excessive or shortage of inventory
        • To have uninterrupted production
        • for effective utilization of store space
        • To provide right material at right time, from right source & at
        • right prices.
    • TOOLS OF INVENTORY MANAGEMENT
      • Fixation of levels- Maximum level
      • Minimum Level
      • Reorder level
      • Danger level
      • 2. Fixation of EOQ-  2AO ÷C
      • ABC analysis
      • VED analysis
      • FSN /FNSD analysis
      • Perpetual inventory system
      • Periodic inventory system
      • Inventory turnover ratios
      • JIT Analysis
    • CASH MANAGEMENT
      • Objectives- To make prompt cash payments
      • To maintain minimum cash reserve
      • Motives of holding cash- Transaction motive
      • Precautionary motive
      • Speculative motive
      • compensatory motive
      • Cash management strategies -
      • Cash planning
      • Managing the cash flows
      • Optimum cash balance
      • Investing idle cash.
      • Cash planning – It is a technique to plan for & use of cash. It involves cash forecasting and budgeting. Cash budgets & forecasting – Short term cash forecasting Long term cash forecasting Methods of cash forecasting – 1. Receipt & Disbursement method 2. Adjusted net income method
    • 2. Managing cash flows
      • Accelerating cash collection
      • Prompt payment by customers
      • Lock box system
      • Concentrating banking
      • Electronic fund transfer
      • Decentralize collection
      • Controlling Disbursement
      • Playing the Float-collection float
      • payment float
      • Payment on last day & by drafts
      • Centralisation of payments
    • 3. Determining optimum cash balance
      • 4. Investment in marketable securities.
      • Selection of securities
      • Safety
      • Maturity
      • Marketability
    • RECEIVABLES MANAGEMENT
      • Meaning –
      • Determinants of accounts receivable/credit sales-
      • Credit sales volume
      • Credit policies
      • Business terms- time period, discounts
      • Competition
      • Location
      • New products
      • Cost of receivables/trade credits-
      • Carrying cost
      • Defaulting cost
      • Administration cost
    • Management of receivables
      • Forming of credit policy
      • Executing credit policy
      • Formulating & executing collection policy
      • Credit rating-5 C’s (character, capacity, capital, collateral & condition)
      • Ageing schedules- it is a statement prepared to determine quality of individual debtors.
      • No of days, period ending, % age of debt etc.
      • Factoring-
      • Services- finance, maintenance of accounts, collection of data or protection against credit risks.