Working Capital Management-B.V.Raghunandan

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deals with working capital, its management and determination

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Working Capital Management-B.V.Raghunandan

  1. 1. Module 5 Working Capital Management
  2. 2. Meaning of Working Capital <ul><li>Finance needed for meeting day-to-day expenses </li></ul><ul><li>Gross Working Capital </li></ul><ul><li>Net Working Capital </li></ul><ul><li>Permanent Working Capital </li></ul><ul><li>Temporary Working Capital </li></ul>
  3. 3. Factors Determining the Size of Working Capital <ul><li>Nature of Business </li></ul><ul><li>Scale of Operation </li></ul><ul><li>Length of Operating Cycle: </li></ul><ul><li>Rapidity of Turnover </li></ul><ul><li>Nature of Demand </li></ul><ul><li>Level of Automation </li></ul><ul><li>Reliability of Supply </li></ul><ul><li>Credit Policy </li></ul><ul><li>Suppliers ’ Credit </li></ul><ul><li>Level of Profits </li></ul><ul><li>Banking Norms </li></ul><ul><li>Taxes </li></ul><ul><li>Dividend Policy </li></ul><ul><li>Operative Efficiency </li></ul>
  4. 4. Concept of Operating Cycle <ul><li>Raw Material Conversion Period </li></ul><ul><li>Work-In-Progress Conversion Period </li></ul><ul><li>Finished Goods Conversion Period </li></ul><ul><li>Book Debt Conversion Period </li></ul>
  5. 5. Components of Working Capital Method <ul><li>A) Current Assets </li></ul><ul><li>1) Inventory </li></ul><ul><li>(+) (2) Debtors </li></ul><ul><li>(+) (3) Cash in hand & at bank </li></ul><ul><li>(+) (4) Prepaid Expenses & Accrued Income </li></ul><ul><li>Gross Working Capital--- </li></ul><ul><li>(B) Current Liabi lities </li></ul><ul><li>( – ) Creditors/Bills Payable </li></ul><ul><li>( – ) Expenses Outstanding </li></ul><ul><li>(Incl. lag in expenses) </li></ul><ul><li>Net Working capital </li></ul>
  6. 6. <ul><li>The figures relating to a trading firm are given below. Estimate the Working Capital requirement of the concern. </li></ul><ul><li>(a) Estimated sales-2, 00,000 units @ Rs. 12 per unit </li></ul><ul><li>(b) Net Profit on sales @ 30% </li></ul><ul><li>(c) Customers are allowed a credit period of 2 months </li></ul><ul><li>(d) Suppliers also allowed a credit period of 2 months </li></ul><ul><li>(e) Average Inventory holding period -3 months </li></ul><ul><li>(f) Provide 10% for contingencies </li></ul><ul><li>(g) Cash in hand is estimated to be Rs. 40,000 </li></ul><ul><li>  </li></ul>

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