Working Capital Analysis on PRAN-RFL Company [Financial Management]

3. Submitted BY
Name ID
Osman Goni Shagor 1282
Md. Kamrul Hasan Chy 1291
Sanjida Afroz 1314
Fahamida Sultana 1262
Jannatul Mauwa 1296
Ashik Bin Jamal 1236
Presentation Date : July 1st , 2015

4. Contents Slide No
Definition of working Capital 4
Types of working capital 5
Source of working capital 8
Statement of Financial Position of
PRAN-RFL Company
10
Calculation of Net Working Capital 11
Net Working Capital ratio 12
Effect of working capital ratio in
PRAN-RFL Company
14

5.  Working capital is the life blood and nerve centre of a business.
Just as, working capital is very essential to maintain the smooth
running of a business
 Working capital refers to that part of firm’s capital which is
required for financing short term or current assets such as
cash, marketable securities, debtors, and inventories. In other
words working capital is the amount of funds necessary to
cover the cost of operating the enterprise.
 Meaning: Working capital means the funds (capital) available
and used for day to day operations ( working) of an enterprise. It
consists broadly of that portion of assets of a business which
are used in or related to its current operations. It refers to funds
which are used during an accounting period to generate a
current income of a type which is consistent with major purpose
of a firm existence.
INTRODUCTION TO WORKING CAPITAL

6.  Working capital :is the fund which is used for daily operation of
businesses. That acts as important concept in finance.
 Working capital: represents the funds available with the company
for day to day operations.
 working capital: finances the cash conversion cycle. company
cannot survive with negative working capital which represents that
the company has no funds for day to day operations
 Working capital is: Current asset – current Liabilities.
Definitions

7. Types of working Capital
WORKING CAPITAL
BASIS OF
CONCEPT
BASIS OF
TIME
Gross
Working
Capital
Net
Working
Capital
Permanent
/ Fixed
WC
Temporary
/ Variable
WC
Regular
WC
Reserve
WC
Special
WC
Seasonal
WC

8. BASIS OF CONCEPT
There are two concepts of working capital: Gross and Net.
Gross working capital- means the total
current assets.
Net working capital- means the difference
between current assets and current liabilities.

9. BASIS OF TIME
 1. Permanent Working Capital
 It is the minimum working capital required for producing
predetermined production
 2. Temporary Working Capital:
 It is the additional current assets required for temporary
period, and it is above permanent WC

10. Amount Variable Working Capital
of
Working
Capital
Permanent Working Capital
Time
Permanent and temporary working capital for Stable firm

11. Variable Working Capital
Amount
of
Working
Capital
Permanent Working Capital
Time
Permanent and temporary working capital for Growing firm

12. THE NEED OR OBJECTS OF WC
WC is needed for the following purposes:-
 For the purchase of raw material.
 To pay wages & salaries.
 To incur day to day expenses and overhead costs.
 To meet selling costs.
 To provide credit facilities to the customer.
 To maintain the inventories of raw material, work in
progress, stores and spares and finished stock.

13. SOURCES OF WORKING CAPITAL
 Cash Credit / Overdraft
 Cash Management
 Working Capital Demand Loan
 Bill Discounting / Receivable Discounting
 Export Finance / Bill Negotiation
 Term Loans
 Letter of Credit
 Bank Guarantee
 Foreign Currency Loans

14. WORKING CAPITAL ANALYSIS OF PRAN-RFL
COMPANY LTD.

16. Calculation of Net Working
Capital
 Formula:
 Net Working Capital : Current Assets – Current
Liabilities
 Net Working Capital:
 335186963 – 193381209 = 141805754

17. Net Working Capital Ratio
Working Capital ratio: __Current Assets__
Current Liabilities
335186963___
193381209
= 1.73 or 173%
0
500
1000
2011
2012
2013
2014
Revenue
Working
Capital
Net Profit
2011- 154%
2012- 159%
2013- 173%
2014- 173%

18. Effect of Working Capital In PRAN-RFL
Group
 Effect on Cash
When planning the short or long-term funding requirements
of a business, it is more important to forecast the likely cash
requirements than to project profitability etc.
More businesses fail for lack of cash than for want of profit.
Calculating Cash Flows:
Cash flow planning entails forecasting and tabulating all
significant cash inflows relating to sales, new loans,
interest received etc., and then analyzing in detail the
timing of expected payments relating to suppliers, wages,
other expenses, capital expenditure, loan repayments,

19. Effect of Working Capital In PRAN-RFL
Group
 Maintaining Liquidity position
For maintaining liquidity position there is a need to maintain
CA sufficiently in excess of CL
 Judge Financial Soundness of a firm
The Net working capital helps creditors and investors to judge
financial soundness of a firm
 Credit Worthiness:
Credit worthiness means the capacity of paying all credits
like account payable, loans etc. If the working capital is too
low then average, the company can not pay the dues.

20. Effect of Working Capital In PRAN-RFL
Group
 New Investment:
Working capital helps the company making any new
investment. If the company have much working capital
than they actually need, they can use those amount of
money for new projects.
 Revenue Earning:
Surplus working capital kept idle in the company, it can not
generate income for the company. So, company can use
the surplus amount of money in production or other project
and add some extra amount of money with revenue.
 Maintains Solvency of Business:
Working capital can be used in paying dues, salaries and
wages. It also can use as emergency fund at the time of

21. Effect of Working Capital In PRAN-RFL
Group
 Creating & Maintaining Goodwill:
Working capital is a sing of companies solvency. Company
does not get any loan benefits if they have working capital
shortage. Shortage of working capital have an bed effect on
paying credits. That may reduce company’s goodwill.

22.  After study the nature of production, we can estimate the need for
working capital. If company produces products at large scale and
continues producing goods, then company needs high amount of
working capital.
 As we discussed working capital is the life
blood of the business so we should keep it
controlled I think if we use from Gross Working
capital we can expedite our business well and
every thing in average will work more.
What is the need for working
capital?