This document discusses working capital management. It defines working capital as the capital required to finance short-term assets like cash, debtors, and inventory. It describes the different types of working capital as gross working capital, net working capital, permanent working capital, and temporary working capital. It also outlines several factors that determine a firm's working capital needs such as nature of business, sales volume, inventory turnover, and terms of credit. The document concludes by explaining the goals of working capital management and how it involves managing inventory, accounts receivable and payable, and cash.
Introduction
Working capital typically means the firm’s holding of current or short-term assets such as cash, receivables, inventory and marketable securities.
These items are also referred to as circulating capital
Corporate executives devote a considerable amount of attention to the management of working capital
Definition
Working Capital refers to that part of the firm’s capital, which is required for financing short-term or current assets such a cash marketable securities, debtors and inventories. Funds thus, invested in current assets keep revolving fast and are constantly converted into cash and this cash flow out again in exchange for other current assets. Working Capital is also known as revolving or circulating capital or short-term capital.
Nature Of Working Capital
Working capital management is concerned with the problems that arise in attempting to manage the current assets, the current liabilities and the interrelations that exist between them.
Current assets refer to those assets which in the ordinary course of business can be, or will be, converted into cash within one year without undergoing a diminution in value and without disrupting the operations of the firm.
Examples- cash, marketable securities, accounts receivable and inventory.
Current liabilities are those liabilities which are intended, at their inception, to be paid in the ordinary course of business, within a year, out of the current assets or the earnings of the concern.
Examples- accounts payable, bills payable, bank overdraft and outstanding expenses.
The capital which is needed for the regular operation of business is called working capital. 1- for the purchase of raw materials
2- for the payment of wages
3- payment of rent and of other expenses
Working capital is kept in the form of cash, debtors, raw materials inventory, stock of finished goods, bills receivable etc.
Size Of Business
Nature Of Business
Storage Period
Credit Period
Seasonal Requirement
Potential Growth Or Expansion Of Business
Changes In Price Level
Dividend Policy
Working Capital Cycle
Operating Efficiency
Other Factors
Working capital requirement of a firm is directly influenced by the size of its business operation.
Big business organizations require more working capital than the small business organization.
Working capital requirement depends also upon the nature of business carried by the firm. Normally, manufacturing industries and trading organizations need more working capital than in the service business organizations.
A service sector does not require any amount of stock of goods. But in the manufacturing or trading firm, credit sales and advance related transactions are in large amount.
Time needed for keeping the stock in store is called storage period. The amount of working capital is influenced by the storage period. If storage period is high A firm should keep more quantity of goods in store and hence requires more working capital. if the storage Period is less , then more stock of goods must be held in store as work-in-progress.
Introduction
Working capital typically means the firm’s holding of current or short-term assets such as cash, receivables, inventory and marketable securities.
These items are also referred to as circulating capital
Corporate executives devote a considerable amount of attention to the management of working capital
Definition
Working Capital refers to that part of the firm’s capital, which is required for financing short-term or current assets such a cash marketable securities, debtors and inventories. Funds thus, invested in current assets keep revolving fast and are constantly converted into cash and this cash flow out again in exchange for other current assets. Working Capital is also known as revolving or circulating capital or short-term capital.
Nature Of Working Capital
Working capital management is concerned with the problems that arise in attempting to manage the current assets, the current liabilities and the interrelations that exist between them.
Current assets refer to those assets which in the ordinary course of business can be, or will be, converted into cash within one year without undergoing a diminution in value and without disrupting the operations of the firm.
Examples- cash, marketable securities, accounts receivable and inventory.
Current liabilities are those liabilities which are intended, at their inception, to be paid in the ordinary course of business, within a year, out of the current assets or the earnings of the concern.
Examples- accounts payable, bills payable, bank overdraft and outstanding expenses.
The capital which is needed for the regular operation of business is called working capital. 1- for the purchase of raw materials
2- for the payment of wages
3- payment of rent and of other expenses
Working capital is kept in the form of cash, debtors, raw materials inventory, stock of finished goods, bills receivable etc.
Size Of Business
Nature Of Business
Storage Period
Credit Period
Seasonal Requirement
Potential Growth Or Expansion Of Business
Changes In Price Level
Dividend Policy
Working Capital Cycle
Operating Efficiency
Other Factors
Working capital requirement of a firm is directly influenced by the size of its business operation.
Big business organizations require more working capital than the small business organization.
Working capital requirement depends also upon the nature of business carried by the firm. Normally, manufacturing industries and trading organizations need more working capital than in the service business organizations.
A service sector does not require any amount of stock of goods. But in the manufacturing or trading firm, credit sales and advance related transactions are in large amount.
Time needed for keeping the stock in store is called storage period. The amount of working capital is influenced by the storage period. If storage period is high A firm should keep more quantity of goods in store and hence requires more working capital. if the storage Period is less , then more stock of goods must be held in store as work-in-progress.
PROJECT ON WORKING CAPITAL MANAGEMENT
Efficient management of working Capital is one of the pre-conditions for the success of an enterprise. To reach optimal working capital management firm manager should control the trade-off between profitability and liquidity accurately. The purpose of this study is to investigate the relationship between working capital management and firm’s profitability.
In this study, we have selected a sample of 5 top notch Electricals firms and taken their financial data for a period of 6 years from 2008 – 2013 and studied the effect of different variables of working capital management including the Cash conversion cycle and Current ratio on the profitability of the firms.
The study shows that there is a negative significant relationship between cash conversion cycle & firm’s profitability and positive relationship between Current Ratio & profitability of firms. This reveals that reducing cash conversion period and increasing the current ratio results into profitability increase. Thus, in purpose to create shareholder value, firm manager should concern on shorten of cash conversion cycle till accomplish optimal level.
Working capital management — factors determining working capital — estimation of working capital —inventory management techniques — receivables management — management of cash and marketable securities — techniques of cash management — committees on working capital and their findings and recommendations.
This presentation is an overview of Working Capital Management.
Dr. Soheli Ghose ( Ph.D (University of Calcutta), M.Phil, M.Com, M.B.A., NET (JRF), B. Ed).
Assistant Professor, Department of Commerce,St. Xavier's College, Kolkata.
Guest Faculty, M.B.A. Finance, University of Calcutta, Kolkata
Working Capital – An Effective Business Management Toolinventionjournals
This paper represents an overview of Working Capital – An Effective Business Management Tool. It depicts the importance of Working Capital in business management and its success. It is one of the most importance and vital issue to be discussed of the business world and must be discussed in the most vivid way to provide a clear understanding of the term Working Capital and its important components. The study basically focuses on the theoretical background of the term Working Capital and its major components. Although, Working Capital has been discussed million times in the past and will be discussed more in the future. But even then, the term Working Capital remains under the hazy cloud of explanation. Hence this article tries to provide a clear understanding of the term Working Capital along with its related concepts.
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1. BHARATI VIDYAPEETH DEEMED UNIVERSITY, PUNE.
(Y.M.COLLEGE)
Presentation
On
Working capital
“ Managment Accounting I”
BY
NOOSHIN GHODSI MAAB
R.N. (4372)
M.COM
SEMESTER III
2. Index:
• Definition of Working Capital
• TYPES OF WORKING CAPITAL
• FACTORS DETERMINING WORKING
CAPITAL
• Working Capital Management
• Inventory Management
• Cash Management
3. Definition of Working CapitalDefinition of Working Capital
Working Capital refers to that part of theWorking Capital refers to that part of the
firm’s capital, which is required forfirm’s capital, which is required for
financing short-term or current assetsfinancing short-term or current assets
such a cash marketable securities, debtorssuch a cash marketable securities, debtors
and inventories.. Working Capital is alsoand inventories.. Working Capital is also
known asknown as revolving or circulating capital orrevolving or circulating capital or
short-term capitalshort-term capital..
4. TYPES OF WORKING CAPITAL
WORKING CAPITAL
BASIS OF
CONCEPT
BASIS OF
TIME
Gross
Working
Capital
Net
Working
Capital
Permanen
t / Fixed
WC
Temporary
/ Variable
WC
5. Concepts of Working
Capital
• Gross Working Capital: It refers to
the total of all current assets.
• Net Working Capital: It refers to
the difference between current
assets and current liabilities
7. Current Assets:
• Inventories
• Raw materials and Components
• Work-in-process
• Finished Goods
• Trade Debtors
• Loans and Advances
• Cash and Bank Balances
8. Permanent working
capital:
• Minimum amount of investment in all current
assets which is required at all times to carry out
minimum level of business activities.
• Amount of permanent working capital remains in
the business in one form or other.
• There is a positive correlation between the
amount of permanent working capital and the size
of the business.
• Permanent working capital is permanently needed
therefore it should be financed through long-
term funds
9. Temporary working
capital:
• The amount of temporary working capital
fluctuates depending upon the changes in
the production and sales.
• Temporary working capital = fluctuating
working capital = variable working capital
• Temporary working capital supports
seasonal peaks in business
10. FACTORS DETERMINING WORKINGFACTORS DETERMINING WORKING
CAPITALCAPITAL
1. Nature of the Business1. Nature of the Business
2. Size Of Business Volume of Sales2. Size Of Business Volume of Sales
3. Terms of Purchase and Sales3. Terms of Purchase and Sales
4. Inventory Turnover4. Inventory Turnover
5. Seasonal variations5. Seasonal variations
6. Cash requirements6. Cash requirements
7.7. Potential Growth Or Expansion Of BusinessPotential Growth Or Expansion Of Business
contdcontd……
11. Working Capital Determinants (Contd…)Working Capital Determinants (Contd…)
8. Management Ability 8. Management Ability
9. Volume of Business9. Volume of Business
10. Dividend Policy 10. Dividend Policy
11. Risk Factors11. Risk Factors
12. Terms of Credit12. Terms of Credit
13. Size of Labour13. Size of Labour
14. Terms of purchase and sale14. Terms of purchase and sale
12. Working Capital
Management
• Working capital management involves the
relationship between a firm's short-term assets
and its short-term liabilities. The goal of working
capital management is to ensure that a firm is
able to continue its operations and that it has
sufficient ability to satisfy both maturing short-
term debt and upcoming operational expenses.
The management of working capital involves
managing inventories, accounts receivable and
payable, and cash.
13. Inventory Management:
• Inventory management— establishes
a balance between carrying enough
inventory to meet sales or production
requirements while minimizing
inventory costs.
14. Cash Management:
• Cash management—determining:
– Optimal size of firm’s liquid asset
balance
– Appropriate types and amounts of
short-term investments
– Most efficient methods of controlling
collection and disbursement of cash