working capital management

1. WORKING
CAPITAL
MANAGEMENT
Submitted by:
Yashica
Tanya Khurana
Prachi Jain
Sonam Sharma
Parika Singla
Muskaan Bhola
Abhishek Kumar

2. AGENDA
 Introduction to the topic
 Concenpts of working capital management
 Components of working capital management
 Liquidity vs profitability
 Operating cycle method
 Principles of working capital management
 Conclusion

3. INTRODUCTION
What is working capital?
Working capital is the difference between a
company’s current assets and current
liabilities.
It is a measure of a company’s liquidity and
short-term financial health.

5. WHAT IS WORKING
CAPITAL
MANAGEMENT ?
 It ensures that an organization operates efficiently by
monitoring & utilizing its current assets and current
liabilities.
 Objective: To enable a company to maintain sufficient
cash flows in order to meet its day-to-day operating
expenses and its short-term obligations.

6. CLASSIFICATION OR KINDS OF WORKING
CAPITAL

7. GROSS AND NET WORKING CAPITAL

9. COMPONENTS
Trade
Receivables
Inventory
Accounts
Receivable
Accounts
Payable
Cash and
Cash
Equivalents

10. FACTORS
Nature of
Business
Scale of
Operation
Business Cycle
Fluctuation
Seasonal
Factors
Technology and
Production Cycle
Credit Allowed
Credit Avail
Operating
Efficiency
Availability of Raw
Materials
Level of
Competition

12. WHAT IS AN
OPERATING CYCLE ?
An operating cycle refers to the time it takes a company to buy
goods, sell them and receive cash from the sale of said goods. In
other words, it’s how long it takes a company to turn its inventories
into cash.
For example, if a business has a short operating cycle, this means
it'll be receiving payment at a steady rate. The faster the company
generates cash, the more it'll be able to pay off any outstanding
debts or expand its business accordingly.
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14. Gross operating cycle = RMCP + WIPCP + FGCP + RCP
RMCP: Raw Material Conversion Period
WIPCP: Work In Process Conversion Period
FGCP: Finished Goods Conversion Period
RCP: Receivables Conversion Period
Net operating cycle period = gross operating cycle period - payable deferral period
Raw material conversion period = average stock of raw material / raw material consumption per
day
Work in process conversion period = average stock of work in progress / total cost of production
per day
Finished goods conversion period = average stock of finished goods / total cost of goods sold
per day
Receivables conversion period = average accounts receivables / net credit sales per day
Payable deferral period = average payables / net credit purchases per day

17. Profitability Liquidity
Profitability is for a period and it not a position for a
particular time
Liquidity is for a particular time, and it is as on date
position and not for a particular time period
Profitability is an income statement item and not a balance
sheet item
Profitability is a balance sheet item and not an income
statement item
The Key ratios to determine the profitability of the
company is:-
•Gross Profit Margin
•Net Profit Margin
•EBIDTA Margin
•EBIT Margin
•CAGR
The Key ratios to determine the Liquidity of the company
is:-
•Current Ratio
•Acid Test Ratio
•Quick Ratio
•Interest Coverage Ratio
•Fixed Coverage Ratio
Profitability is a measure of financial performance
Liquidity is a measure of a cash position in the company
and how the liquid is the company is to meet its short-term
obligations
Profitability is also a degree of how well the company is
generating margins from its business
Liquidity is the degree to how well the company can
convert its sales into cash

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24. CONCLUSION
 From all the above discussion we can conclude that Working
Capital Management is one of the tending contemporary issue
which the business enterprises and organizations are facing
now-a-days.
 Short-term capital management is important to ensure that an
entity is able to conduct its daily business successfully.
 In order to maintain liquidity, an entity needs to manage and limit
its investment in those current assets that are not as liquid as
cash. Having too large an investment in current assets that are
not as liquid as cash means that cash is not immediately
available when it is needed for day-to-day transactions.

25. THANK YOU