This document provides an introduction to working capital management. It defines working capital as the capital required to meet the day-to-day expenses of a business. Working capital can be classified based on concept into gross working capital and net working capital, and based on need into permanent, temporary, regular and reserve working capital. The operating cycle concept and cash conversion cycle are also introduced as methods to estimate working capital requirements. Working capital needs vary between different types of firms.

1. AN INTRODUCTION
TO WORKING
Dr. NEERAJ CHITKARA
CAPITAL
MANAGEMENT
Dr. Neeraj Chitkara
Assistant Professor
Samalkha Group of Instituions.
Email- neer.chitkara@gmail.com

2. MEANING OF WORKING CAPITAL
 Working Capital is that capital which is involved in
Dr. NEERAJ CHITKARA
the current assets of the business. Basically it is the
capital which is required to meet the day to day
expenses of the business.

3. TYPES/KINDS OF WORKING CAPITAL
 On the basis of  On the basis of need
Dr. NEERAJ CHITKARA
Concept
 Gross Working Capital  Permanent Working
 Net Working Capital Capital
 Temporary Working
Capital

4. ON THE BASIS OF CONCEPTS
 Gross working capital =Total current assets
Dr. NEERAJ CHITKARA
Arguments in the favour of this concept :
1. Management is concerned with total current
assets as they represent the funds available for
operating expenses.
2. Gross Concept gives the ideas about the liquidity
and profitability of business.
3. Every increase in current borrowings will increase
current assets.

5. CONT..
 Net working capital = Current assets-Current
Liabilities
Dr. NEERAJ CHITKARA
Arguments in the favour of this concept :
1. This concept helps the creditors in measuring
liquidity.
2. It gives idea about how much to invest in current
assets.
3. Only the surplus can be used to meet
contingencies.

6. ON THE BASIS NEED
 Permanent working Capital
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The sum up of the funds required to finance the
minimum level of current assets of the business is
known as the permanent working capital. This
capital is required every time to put the business
into working condition.
 Regular working Capital
 Reserve Working Capital

7. CONT…
 Temporary working Capital
It is required to explore the short term opportunities of
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the market. The requirement of temporary working
capital varies with time period.
 Seasonal working capital
 Special working capital

8. WORKING CAPITAL NEEDS OF DIFFERENT
FIRMS
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9. CONCEPTS OF WORKING CAPITAL
 Balance Sheet Concept
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 Gross working Capital
 Net working Capital
 Operating Cycle concept

10. OPERATING CYCLE CONCEPT
Operating Cycle may be defined as the time duration
starting from the procurement of raw materials or
goods and ending with sales realization .
Dr. NEERAJ CHITKARA
Operating Cycle of a firm consists of the time
requirement for the completion of the following
activities.
 Procurement of raw material
 Conversion of raw into goods
 Distribution of goods
 Sale of goods(Cash or Credit)
 Conversion of receivables into Cash

11. CALCULATION OF DURATION OF OPERATING CYCLE
Duration of raw material storage stage
+
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Duration of work in process stage
+
Duration of finished goods stage
+
Duration of receivables collection stage
-
Duration of the credit period allowed by suppliers
O=R+W+F+D-C

12. ESTIMATION OF WORKING CAPITAL REQUIREMENTS
 Calculate no. of operating cycles in a year i.e
365
Dr. NEERAJ CHITKARA
no. of days in a operating cycle
 Total operating exp. Of the year
No. of the operating cycle in the year
The resulted amount plus additional amount for
contingences will be the avg. requirement of
working capital.

13. THE OPERATING CYCLE CONCEPT
Receivable
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Cash Sale
Inventory
Labour
Assets, Taxes Profits……

14. CASH CONVERSATION CYCLE
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Sell
Purchase Pay for Collect
Inventory
Inventory Inventory Receivables
On Credit