BHARATI VIDYAPEETH DEEMED UNIVERSITY, PUNE.
“ Managment Accounting I”
NOOSHIN GHODSI MAAB
• Definition of Working Capital
• TYPES OF WORKING CAPITAL
• FACTORS DETERMINING WORKING
• Working Capital Management
• Inventory Management
• Cash Management
Definition of Working CapitalDefinition of Working Capital
Working Capital refers to that part of theWorking Capital refers to that part of the
firm’s capital, which is required forfirm’s capital, which is required for
financing short-term or current assetsfinancing short-term or current assets
such a cash marketable securities, debtorssuch a cash marketable securities, debtors
and inventories.. Working Capital is alsoand inventories.. Working Capital is also
known asknown as revolving or circulating capital orrevolving or circulating capital or
short-term capitalshort-term capital..
TYPES OF WORKING CAPITAL
t / Fixed
Concepts of Working
• Gross Working Capital: It refers to
the total of all current assets.
• Net Working Capital: It refers to
the difference between current
assets and current liabilities
• Raw materials and Components
• Finished Goods
• Trade Debtors
• Loans and Advances
• Cash and Bank Balances
• Minimum amount of investment in all current
assets which is required at all times to carry out
minimum level of business activities.
• Amount of permanent working capital remains in
the business in one form or other.
• There is a positive correlation between the
amount of permanent working capital and the size
of the business.
• Permanent working capital is permanently needed
therefore it should be financed through long-
• The amount of temporary working capital
fluctuates depending upon the changes in
the production and sales.
• Temporary working capital = fluctuating
working capital = variable working capital
• Temporary working capital supports
seasonal peaks in business
FACTORS DETERMINING WORKINGFACTORS DETERMINING WORKING
1. Nature of the Business1. Nature of the Business
2. Size Of Business Volume of Sales2. Size Of Business Volume of Sales
3. Terms of Purchase and Sales3. Terms of Purchase and Sales
4. Inventory Turnover4. Inventory Turnover
5. Seasonal variations5. Seasonal variations
6. Cash requirements6. Cash requirements
7.7. Potential Growth Or Expansion Of BusinessPotential Growth Or Expansion Of Business
Working Capital Determinants (Contd…)Working Capital Determinants (Contd…)
8. Management Ability 8. Management Ability
9. Volume of Business9. Volume of Business
10. Dividend Policy 10. Dividend Policy
11. Risk Factors11. Risk Factors
12. Terms of Credit12. Terms of Credit
13. Size of Labour13. Size of Labour
14. Terms of purchase and sale14. Terms of purchase and sale
• Working capital management involves the
relationship between a firm's short-term assets
and its short-term liabilities. The goal of working
capital management is to ensure that a firm is
able to continue its operations and that it has
sufficient ability to satisfy both maturing short-
term debt and upcoming operational expenses.
The management of working capital involves
managing inventories, accounts receivable and
payable, and cash.
• Inventory management— establishes
a balance between carrying enough
inventory to meet sales or production
requirements while minimizing
• Cash management—determining:
– Optimal size of firm’s liquid asset
– Appropriate types and amounts of
– Most efficient methods of controlling
collection and disbursement of cash
• Principal of management accounting by
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