Working Capital Management

1. Working capital management
Dr. Riya Singh

2. Working capital
Working capital is the funds required to manage the day
to day operations of the business
Working capital = CA- CL
Current assets
Cash, stock, debtors, prepaid expenses
Current liabilities
Creditors, bills payable, o/s expenses, BOD
Components of working capital
• Cash management
• Inventory management
• Receivables management

3. Types of working capital

4. Factors influencing on Working Capital
• Length of Operating Cycle
• Nature of Business
• Variation in sales
• Business Cycle Fluctuation
• Production Schedule
• Availability of raw materials
• Operational efficiency
• Credit Allowed
• Credit Avail
• Inflation

5. Advantages of adequate working capital
• Solvency of the Business
• Goodwill
• Easy Loans
• Cash Discounts
• Regular Supply of Raw Materials
• Regular Payment of Salaries, Wages and Other
Day-to-day Commitments
• Exploitation of Favorable Market Conditions
• Ability to Face Crisis

6. Disadvantages of Excessive Working
Capital
• Excessive working capital means idle funds
which earn no profits for business and hence
business cannot earn a proper rate of return.
• When there is a redundant working capital it
may lead to unnecessary purchasing and
accumulation of inventories causing more
chances of theft, waste and losses.
• It may result into overall inefficiency in
organization.

7. • Due to low rate of return on investments, the
value of shares may also fall.
• The redundant working capital gives rise to
speculative transaction.
• When there is excessive working capital,
relations with banks and other financial
institutions may not be maintained.

8. Cash management
Cash management as the word suggests is the
optimum utilization of cash to ensure maximum
liquidity and maximum profitability. It refers to the
proper collection, disbursement, and investment of
idle cash.
Objectives/motives
• Transactionary motive
• Precautionary motive
• Speculative motive
• Compensatory motive

9. Inventory management
Inventory management is a systematic approach
to sourcing, storing, and selling inventory—both
raw materials (components) and finished goods
(products).
In business terms, inventory management
means the right stock, at the right levels, in the
right place, at the right time, and at the right
cost as well as price.

10. Objectives of inventory management
• To ensure a continuous supply of materials to facilitate
uninterrupted production.
• To maintain sufficient stocks of raw materials during short-
supply;
• To maintain sufficient finished goods for efficient customer
service;
• To minimize the carrying cost; and
• To maintain the optimum level of investment in inventories

11. Techniques of inventory management
• ABC analysis
• VED analysis
• FSN analysis
• Fixation of levels
• JIT
• Periodical Inventory Valuation

12. Sources of working capital
Long term sources
Equity shares
Preference shares
Debentures
Retained earnings
Public depoisits

13. Short term sources
 Cash credit
 Trade credit
 Bills receivables
 Bank over draft
 Short term loans