Successfully reported this slideshow.
We use your LinkedIn profile and activity data to personalize ads and to show you more relevant ads. You can change your ad preferences anytime.

Working Capital Management-B.V.Raghunandan

2,278 views

Published on

Basics of working capital and its management as presented in an Executive Development Programme

Published in: Economy & Finance
  • Be the first to comment

Working Capital Management-B.V.Raghunandan

  1. 1. Working Capital Management - B.V.Raghunandan SVSC,Bantwal AIBA-Executive Development Programme July 29,2006.
  2. 2. Working Capital <ul><li>Funds needed to meet day-to-day expenses </li></ul><ul><li>Gross Working Capital is the sum of all the Current Assets---financed by both long-term and short-term funds </li></ul><ul><li>Net Working Capital is the difference between the Current Assets and Current Liabilities---financed by long term sources of funds </li></ul>
  3. 3. Current Assets <ul><li>Cash in hand & Cash in Current Account </li></ul><ul><li>Near Cash Items like balance in SB A/c, Bank Deposit, Investment in Money Market Instruments, Mutual funds </li></ul><ul><li>Accounts Receivable </li></ul><ul><li>Inventory </li></ul><ul><li>Advance Payments </li></ul>
  4. 4. Current Liabilities <ul><li>Accounts Payable </li></ul><ul><li>Taxes Payable </li></ul><ul><li>Customer Deposit </li></ul><ul><li>Dealers’ Deposit </li></ul><ul><li>Accrued Expenses Payable </li></ul>
  5. 5. Assessment of Working Capital Requirement <ul><li>Operating Cycle Method </li></ul><ul><li>Forecasted Balance Sheet Method </li></ul><ul><li>Percentage of Sales Method </li></ul><ul><li>Trial & Error Method </li></ul>
  6. 6. Operating Cycle Method <ul><li>Estimation of Conversion periods like RMCP,WIPCP,FGCP,BDCP </li></ul><ul><li>Estimation of PDP </li></ul><ul><li>Estimation of Net Operating Cycle </li></ul><ul><li>Determination of No. Net Operating Cycles in a Year </li></ul><ul><li>Sales/ No.of Net Operating Cycles =Working Capital Needed </li></ul>
  7. 7. Forecasted Balance Sheet Method <ul><li>Forecast the elements of the Balance Sheet of the Period </li></ul><ul><li>Sum Up the Current Assets </li></ul><ul><li>Sum Up the Current Liabilities </li></ul><ul><li>Current Assets-Current Liabilities= Net Working Capital </li></ul>
  8. 8. Percentage of Sales Method -Establishing the Working Capital as a Percentage of Sales -Working Capital is estimated for each period as a percentage of the sales forecasted -This method is becoming popular for its simplicity -RBI also favors this method to be followed by the Bankers
  9. 9. Management of Current Assets <ul><li>Cash Management </li></ul><ul><li>Management of Accounts Receivable </li></ul><ul><li>Inventory Management </li></ul>
  10. 10. Cash Management <ul><li>Preparation Cash Budget </li></ul><ul><li>Wherever Possible, use SB A/c with Autosweep facility </li></ul><ul><li>Investment in Near Cash Items like Bank FD, Money Market Instruments, MFs, MMMFs </li></ul><ul><li>Acceleration of Cash Inflow through….. </li></ul><ul><li>Deceleration of Cash Outflow through…….. </li></ul>
  11. 11. Acceleration of Cash Inflow <ul><li>ECS and RTGS </li></ul><ul><li>Discounting Cheques </li></ul><ul><li>Factoring </li></ul><ul><li>Stock Clearance </li></ul><ul><li>Cash Discount to Debtors </li></ul><ul><li>Discounting of Bills </li></ul><ul><li>Disposal of Useless Assets/Brands </li></ul>
  12. 12. Decelerating Cash Outflow <ul><li>Delay Payment of Insensitive Items like Utility Bills, Taxation </li></ul><ul><li>Using Multi-city Cheques instead of Bank Drafts </li></ul><ul><li>Using Credit Card and Charge Accounts without attracting Interest </li></ul><ul><li>New loans in declining interest rate period and opting for Floating interest rate loan </li></ul><ul><li>In a period of increasing interest rate , opt for fixed interest rate loans </li></ul>
  13. 13. Inventory Management <ul><li>Material Budget </li></ul><ul><li>Purchase Budget </li></ul><ul><li>Inventory Levels </li></ul><ul><li>Economic Order Quantity </li></ul><ul><li>Control of Spoilage </li></ul><ul><li>Browsing Websites to reduce lead time </li></ul><ul><li>Plant Proximity </li></ul><ul><li>Just in Time Management </li></ul><ul><li>ERP for Multi-Location Stores </li></ul>
  14. 14. Management of Accounts Receivable <ul><li>Desirability of Credit Sales </li></ul><ul><li>Establishing a Credit Policy for debtor evaluation, credit limit, cash discount </li></ul><ul><li>Billing Procedure: frequency of Statement of Account </li></ul><ul><li>Raising Finance through Factoring, Discounting Bills of Exchange </li></ul><ul><li>Review of Credit Policy </li></ul>

×