This document discusses management of working capital and inventory management. It provides definitions and concepts related to working capital including meaning, types, and sources of finance. It also discusses working capital management, including estimating working capital, objectives, and aspects like inventory, receivables, cash, and payables management. For inventory management specifically, it defines inventory and management, discusses objectives and factors in determining optimum inventory levels.
The document discusses working capital management. It defines working capital as the difference between current assets and current liabilities, and the goal as ensuring sufficient liquidity to meet short-term obligations. It also discusses managing key elements like inventories, receivables, payables and cash. Proper working capital management involves forecasting needs and determining appropriate financing sources to maintain optimal levels of current assets.
This document discusses principles of working capital management. It defines key concepts like gross working capital, net working capital, operating cycle, cash conversion cycle. It also discusses determinants of working capital requirements, issues in managing working capital, and methods of estimating and financing working capital needs. The document provides an overview of working capital management principles.
Working capital refers to the capital required to finance short-term operating expenses like inventory, accounts receivable, and other current assets. It is the difference between current assets and current liabilities and provides funds for day-to-day business operations. There are two main concepts of working capital - the balance sheet concept and operating cycle concept. Firms must determine the optimal level of working capital to balance the costs of holding too much or too little. Tools like economic order quantity, reorder points, and inventory classifications help firms manage working capital levels.
This document discusses principles of working capital management including concepts like gross working capital, net working capital, operating cycle, and determinants of working capital. It covers estimating working capital needs based on current asset holding periods and sales ratios. Methods of financing working capital like long-term vs short-term financing are examined along with approaches like matching, conservative, and aggressive. Managing the risk-return tradeoff between liquidity and profitability is highlighted as a key issue.
Best practice-working-capital-managementfarheenkadge
This document discusses strategies for optimizing working capital management to improve business performance and liquidity. It recommends analyzing key elements of working capital like accounts receivable, inventory, and accounts payable to identify ways to reduce costs and free up capital. The document estimates that active working capital management can unlock 20-30% of tied up funds on average and yield returns within a few months. It also provides industry benchmarks for working capital ratios and estimates the potential savings companies can achieve by improving efficiency.
Working capital management involves managing a company's current assets and current liabilities. It aims to balance financial stability and profitability. Key aspects of working capital management include:
1) Managing inventory levels through techniques like economic order quantity to reduce holding and shortage costs.
2) Managing trade receivables through practices like credit analysis, credit controls, and debt collection to increase sales while controlling risks of bad debts.
3) Matching the cash operating cycle of converting assets into cash with funding sources like trade payables or short/long-term borrowing to minimize liquidity risks.
4) Preparing cash flow forecasts to identify cash surpluses or deficits and arrange appropriate funding. The objective is to
This document discusses working capital management. It covers characteristics of current assets like short lifespans and transformation into other assets. Factors influencing working capital requirements include the nature of business, seasonality, production policy and market conditions. The document also discusses levels of current assets, financing policies, profit criteria and operating cycle analysis. It provides an example calculation of inventory period, accounts receivable period, accounts payable period, operating cycle and cash cycle for a company.
The document discusses working capital management. It defines working capital as the difference between current assets and current liabilities, and the goal as ensuring sufficient liquidity to meet short-term obligations. It also discusses managing key elements like inventories, receivables, payables and cash. Proper working capital management involves forecasting needs and determining appropriate financing sources to maintain optimal levels of current assets.
This document discusses principles of working capital management. It defines key concepts like gross working capital, net working capital, operating cycle, cash conversion cycle. It also discusses determinants of working capital requirements, issues in managing working capital, and methods of estimating and financing working capital needs. The document provides an overview of working capital management principles.
Working capital refers to the capital required to finance short-term operating expenses like inventory, accounts receivable, and other current assets. It is the difference between current assets and current liabilities and provides funds for day-to-day business operations. There are two main concepts of working capital - the balance sheet concept and operating cycle concept. Firms must determine the optimal level of working capital to balance the costs of holding too much or too little. Tools like economic order quantity, reorder points, and inventory classifications help firms manage working capital levels.
This document discusses principles of working capital management including concepts like gross working capital, net working capital, operating cycle, and determinants of working capital. It covers estimating working capital needs based on current asset holding periods and sales ratios. Methods of financing working capital like long-term vs short-term financing are examined along with approaches like matching, conservative, and aggressive. Managing the risk-return tradeoff between liquidity and profitability is highlighted as a key issue.
Best practice-working-capital-managementfarheenkadge
This document discusses strategies for optimizing working capital management to improve business performance and liquidity. It recommends analyzing key elements of working capital like accounts receivable, inventory, and accounts payable to identify ways to reduce costs and free up capital. The document estimates that active working capital management can unlock 20-30% of tied up funds on average and yield returns within a few months. It also provides industry benchmarks for working capital ratios and estimates the potential savings companies can achieve by improving efficiency.
Working capital management involves managing a company's current assets and current liabilities. It aims to balance financial stability and profitability. Key aspects of working capital management include:
1) Managing inventory levels through techniques like economic order quantity to reduce holding and shortage costs.
2) Managing trade receivables through practices like credit analysis, credit controls, and debt collection to increase sales while controlling risks of bad debts.
3) Matching the cash operating cycle of converting assets into cash with funding sources like trade payables or short/long-term borrowing to minimize liquidity risks.
4) Preparing cash flow forecasts to identify cash surpluses or deficits and arrange appropriate funding. The objective is to
This document discusses working capital management. It covers characteristics of current assets like short lifespans and transformation into other assets. Factors influencing working capital requirements include the nature of business, seasonality, production policy and market conditions. The document also discusses levels of current assets, financing policies, profit criteria and operating cycle analysis. It provides an example calculation of inventory period, accounts receivable period, accounts payable period, operating cycle and cash cycle for a company.
Working capital refers to the capital required for financing short-term assets such as cash, inventory, and accounts receivable. It is also known as revolving or circulating capital. There are different types of working capital like gross working capital, net working capital, permanent working capital, and temporary working capital. Management of working capital involves maintaining optimal levels of current assets and current liabilities to ensure sufficient liquidity and an efficient balance between risk and profitability.
Working Capital_Cash Operating Cycle_Inventory ManagementTonny Bbale
This document discusses various aspects of working capital management including:
- Definitions of working capital and its key components like cash, receivables, inventory, and payables.
- The objectives of working capital management are profitability and liquidity. There is sometimes a conflict between these two objectives when decisions are made.
- Key concepts covered include the cash operating cycle, economic order quantity (EOQ) formula, ABC inventory classification, and just-in-time (JIT) techniques.
- Materials requirements planning (MRP) is introduced as a production planning technique that maintains low inventory levels by ordering only what is needed based on the bill of materials and production schedule.
This document discusses the concepts of working capital including gross working capital, net working capital, permanent working capital, and temporary/variable working capital. It explains the need for adequate working capital to sustain business operations and sales activity. The operating cycle approach for estimating working capital requirements is described, involving raw materials, work-in-progress, finished goods, and receivables collection stages. Sources of working capital including long-term and short-term funds are covered. Techniques for assessing working capital needs such as the components method and percent of sales approach are summarized.
The document discusses working capital management. It defines working capital as the excess of current assets over current liabilities. It lists the key components of working capital like inventory, receivables, cash, and payables. It discusses different types of working capital and factors that determine working capital requirements like the nature of business, production cycle, and access to credit. The objectives of working capital management are to optimize current asset investments and ensure current liabilities can be met in a timely manner. Components of working capital management include inventory management, cash management, and receivables management.
This document outlines key concepts related to working capital management. It discusses working capital basics like current assets and liabilities. It also covers topics like the cash conversion cycle, permanent vs temporary working capital, and factors that influence working capital needs. Additionally, it addresses the objectives of working capital management and trade-offs companies consider around inventory, cash, receivables and payables levels. Maintaining an optimal level of working capital is important to ensure liquidity while maximizing profitability.
This document provides an overview of working capital management. It defines working capital as current assets that can be converted to cash within a year to meet day-to-day operations. Working capital management aims to maximize shareholder wealth by managing sources and uses of working capital. It also discusses key aspects like gross and net working capital, operating cycle, factors that affect working capital needs, approaches to financing working capital, and tools for monitoring and controlling working capital. The document provides definitions and formulas to calculate different working capital metrics and estimates working capital requirements based on various operational factors.
The document discusses various aspects of working capital management including its components, factors influencing it, strategies for financing it, and its importance. It also covers inventory management, receivables management, creditors management, and committees that have studied working capital financing in India such as the Tandon Committee and Nayak Committee. Key aspects of working capital like the operating cycle and calculation of working capital requirements are also summarized.
This document discusses working capital management and inventory management. It defines working capital and its sources, including short term sources like factoring, installment credit, bank overdrafts, commercial papers, and letters of credit. Long term sources include equity capital and loans. It also discusses estimating working capital needs using different approaches. The document then defines inventory and its management, including inventory turnover ratio and inventory control techniques like ABC analysis.
This document provides an overview of working capital management at Federal Mogul Corporation. It discusses the company's mission, finance department structure, research methodology, objectives of the study, principles of working capital, classifications of working capital, needs for working capital, determinants of working capital, and management of receivables, creditors, inventory and cash. Key aspects covered include maintaining adequate current assets to meet liabilities, turnover ratios to evaluate liquidity over time, and conclusions regarding the company's satisfactory but improving liquidity position.
This document discusses working capital management. It defines working capital as the funds used in a business for day-to-day operations, and explains that adequate working capital is important for efficiency and survival. It distinguishes between gross and net working capital, and discusses factors that influence working capital requirements like nature of business and credit terms. The document also outlines methods for estimating working capital needs based on current assets, operating cycles, and cash costs.
Working capital ppt @ bec doms bagalkot mbaBabasab Patil
Working capital refers to a company's short-term assets and liabilities. It includes cash, inventory, receivables and payables. There are two concepts of working capital - the balance sheet concept which looks at current assets minus current liabilities, and the operating cycle concept which looks at the time period for purchasing inventory, producing goods, and collecting payment from customers. Proper management of working capital is important for business liquidity and profitability.
The document discusses the nature, concepts, objectives, and determinants of working capital management. It provides definitions of key terms like current assets, current liabilities, gross working capital, net working capital, and approaches to determine an appropriate financing mix. The document also discusses forecasting working capital requirements and factors to consider. It summarizes a research paper that analyzed trends in working capital management and its impact on the performance of Mauritian small manufacturing firms. The study found a relationship between profitability and various working capital measurements.
The document discusses the concept of working capital, which refers to a company's short-term assets and liabilities. It presents two definitions of working capital: the balance sheet concept, which is the excess of current assets over current liabilities, and the operating cycle concept, which refers to the time period between purchasing inventory and collecting cash from sales. The document outlines the key components of a company's operating cycle and how managing working capital, including inventory levels, accounts receivable, and accounts payable, can impact cash flows and the business.
Working capital refers to a company's short-term assets such as cash, inventory, and receivables that are used to fund day-to-day operations, and there are two main concepts for defining it - the balance sheet approach looks at current assets minus current liabilities, while the operating cycle concept focuses on the time required to convert resources into cash from purchasing, producing, and selling goods. Proper management of working capital is important for companies to ensure they have sufficient cash flow and liquidity to pay debts and support daily operations.
ZA
Working capital management is important for business success. Gross working capital refers to total current assets, while net working capital is current assets minus current liabilities. Many factors affect a business's working capital requirements, including its nature, size, growth rate, production cycle, credit and purchasing policies, availability of materials and credit, profit levels, taxes, and price changes. Determining the optimal level of working capital is necessary.
The document discusses various topics related to finance including the meaning of finance, history of finance, types of finance (public, private, personal, corporate), and details about public finance, private finance, corporate finance and personal finance. Specifically, it notes that finance involves the study and process of acquiring funds and is separated into personal, corporate and public subcategories. It also provides histories and definitions for each type of finance.
The document provides an overview of key concepts from the first chapter of a financial management textbook. It discusses the goal of the firm to maximize shareholder wealth. It also outlines five foundational principles of finance, including that cash flow matters, money has time value, risk requires reward, market prices are generally right, and conflicts of interest cause agency problems. Additionally, it describes the role of finance in business decisions around investing, financing, and managing cash flows.
Working capital management involves managing a company's current assets and current liabilities efficiently. It aims to maximize short-term liquidity while maintaining optimal levels of components like inventory and receivables. The document discusses key aspects of working capital management including meaning, types, factors affecting it, and methods of estimating working capital requirements. It also covers management of specific working capital elements like inventory and receivables.
Very Basic of Finance
What is Derivative
Why do we need derivative in the world of finance
Derivative Market at a glance
Types of Derivative
OTC Vs Exchange Traded
Option and Future (F&O)
Derivative Market in India
Regulatory Framework
Present Day
Education: Meaning , Definition, types of education and characteristicsExten...GBPUA&T, Pantnagar
The document discusses the definitions and concepts of education, formal education, non-formal education, informal education, and extension education. It defines education as a process of bringing desirable changes through instruction and defines the various types of education. It notes that extension education aims to disseminate useful information to rural communities to improve lives. The objectives of extension education are discussed as raising living standards, overall development, and bringing changes in knowledge, skills and attitudes of rural people.
This document discusses limitations of ratio analysis and problems with benchmarking ratios. It explains that ratios are used instead of absolute numbers to simplify analysis and control for factors like company size. However, ratios have limitations due to accounting policies, difficulty assessing industry norms, and creative accounting techniques used to manage earnings. Benchmarking ratios against peers or over time also has problems due to non-comparable data, structural changes in companies, and changes in accounting methods.
Working capital refers to the capital required for financing short-term assets such as cash, inventory, and accounts receivable. It is also known as revolving or circulating capital. There are different types of working capital like gross working capital, net working capital, permanent working capital, and temporary working capital. Management of working capital involves maintaining optimal levels of current assets and current liabilities to ensure sufficient liquidity and an efficient balance between risk and profitability.
Working Capital_Cash Operating Cycle_Inventory ManagementTonny Bbale
This document discusses various aspects of working capital management including:
- Definitions of working capital and its key components like cash, receivables, inventory, and payables.
- The objectives of working capital management are profitability and liquidity. There is sometimes a conflict between these two objectives when decisions are made.
- Key concepts covered include the cash operating cycle, economic order quantity (EOQ) formula, ABC inventory classification, and just-in-time (JIT) techniques.
- Materials requirements planning (MRP) is introduced as a production planning technique that maintains low inventory levels by ordering only what is needed based on the bill of materials and production schedule.
This document discusses the concepts of working capital including gross working capital, net working capital, permanent working capital, and temporary/variable working capital. It explains the need for adequate working capital to sustain business operations and sales activity. The operating cycle approach for estimating working capital requirements is described, involving raw materials, work-in-progress, finished goods, and receivables collection stages. Sources of working capital including long-term and short-term funds are covered. Techniques for assessing working capital needs such as the components method and percent of sales approach are summarized.
The document discusses working capital management. It defines working capital as the excess of current assets over current liabilities. It lists the key components of working capital like inventory, receivables, cash, and payables. It discusses different types of working capital and factors that determine working capital requirements like the nature of business, production cycle, and access to credit. The objectives of working capital management are to optimize current asset investments and ensure current liabilities can be met in a timely manner. Components of working capital management include inventory management, cash management, and receivables management.
This document outlines key concepts related to working capital management. It discusses working capital basics like current assets and liabilities. It also covers topics like the cash conversion cycle, permanent vs temporary working capital, and factors that influence working capital needs. Additionally, it addresses the objectives of working capital management and trade-offs companies consider around inventory, cash, receivables and payables levels. Maintaining an optimal level of working capital is important to ensure liquidity while maximizing profitability.
This document provides an overview of working capital management. It defines working capital as current assets that can be converted to cash within a year to meet day-to-day operations. Working capital management aims to maximize shareholder wealth by managing sources and uses of working capital. It also discusses key aspects like gross and net working capital, operating cycle, factors that affect working capital needs, approaches to financing working capital, and tools for monitoring and controlling working capital. The document provides definitions and formulas to calculate different working capital metrics and estimates working capital requirements based on various operational factors.
The document discusses various aspects of working capital management including its components, factors influencing it, strategies for financing it, and its importance. It also covers inventory management, receivables management, creditors management, and committees that have studied working capital financing in India such as the Tandon Committee and Nayak Committee. Key aspects of working capital like the operating cycle and calculation of working capital requirements are also summarized.
This document discusses working capital management and inventory management. It defines working capital and its sources, including short term sources like factoring, installment credit, bank overdrafts, commercial papers, and letters of credit. Long term sources include equity capital and loans. It also discusses estimating working capital needs using different approaches. The document then defines inventory and its management, including inventory turnover ratio and inventory control techniques like ABC analysis.
This document provides an overview of working capital management at Federal Mogul Corporation. It discusses the company's mission, finance department structure, research methodology, objectives of the study, principles of working capital, classifications of working capital, needs for working capital, determinants of working capital, and management of receivables, creditors, inventory and cash. Key aspects covered include maintaining adequate current assets to meet liabilities, turnover ratios to evaluate liquidity over time, and conclusions regarding the company's satisfactory but improving liquidity position.
This document discusses working capital management. It defines working capital as the funds used in a business for day-to-day operations, and explains that adequate working capital is important for efficiency and survival. It distinguishes between gross and net working capital, and discusses factors that influence working capital requirements like nature of business and credit terms. The document also outlines methods for estimating working capital needs based on current assets, operating cycles, and cash costs.
Working capital ppt @ bec doms bagalkot mbaBabasab Patil
Working capital refers to a company's short-term assets and liabilities. It includes cash, inventory, receivables and payables. There are two concepts of working capital - the balance sheet concept which looks at current assets minus current liabilities, and the operating cycle concept which looks at the time period for purchasing inventory, producing goods, and collecting payment from customers. Proper management of working capital is important for business liquidity and profitability.
The document discusses the nature, concepts, objectives, and determinants of working capital management. It provides definitions of key terms like current assets, current liabilities, gross working capital, net working capital, and approaches to determine an appropriate financing mix. The document also discusses forecasting working capital requirements and factors to consider. It summarizes a research paper that analyzed trends in working capital management and its impact on the performance of Mauritian small manufacturing firms. The study found a relationship between profitability and various working capital measurements.
The document discusses the concept of working capital, which refers to a company's short-term assets and liabilities. It presents two definitions of working capital: the balance sheet concept, which is the excess of current assets over current liabilities, and the operating cycle concept, which refers to the time period between purchasing inventory and collecting cash from sales. The document outlines the key components of a company's operating cycle and how managing working capital, including inventory levels, accounts receivable, and accounts payable, can impact cash flows and the business.
Working capital refers to a company's short-term assets such as cash, inventory, and receivables that are used to fund day-to-day operations, and there are two main concepts for defining it - the balance sheet approach looks at current assets minus current liabilities, while the operating cycle concept focuses on the time required to convert resources into cash from purchasing, producing, and selling goods. Proper management of working capital is important for companies to ensure they have sufficient cash flow and liquidity to pay debts and support daily operations.
ZA
Working capital management is important for business success. Gross working capital refers to total current assets, while net working capital is current assets minus current liabilities. Many factors affect a business's working capital requirements, including its nature, size, growth rate, production cycle, credit and purchasing policies, availability of materials and credit, profit levels, taxes, and price changes. Determining the optimal level of working capital is necessary.
The document discusses various topics related to finance including the meaning of finance, history of finance, types of finance (public, private, personal, corporate), and details about public finance, private finance, corporate finance and personal finance. Specifically, it notes that finance involves the study and process of acquiring funds and is separated into personal, corporate and public subcategories. It also provides histories and definitions for each type of finance.
The document provides an overview of key concepts from the first chapter of a financial management textbook. It discusses the goal of the firm to maximize shareholder wealth. It also outlines five foundational principles of finance, including that cash flow matters, money has time value, risk requires reward, market prices are generally right, and conflicts of interest cause agency problems. Additionally, it describes the role of finance in business decisions around investing, financing, and managing cash flows.
Working capital management involves managing a company's current assets and current liabilities efficiently. It aims to maximize short-term liquidity while maintaining optimal levels of components like inventory and receivables. The document discusses key aspects of working capital management including meaning, types, factors affecting it, and methods of estimating working capital requirements. It also covers management of specific working capital elements like inventory and receivables.
Very Basic of Finance
What is Derivative
Why do we need derivative in the world of finance
Derivative Market at a glance
Types of Derivative
OTC Vs Exchange Traded
Option and Future (F&O)
Derivative Market in India
Regulatory Framework
Present Day
Education: Meaning , Definition, types of education and characteristicsExten...GBPUA&T, Pantnagar
The document discusses the definitions and concepts of education, formal education, non-formal education, informal education, and extension education. It defines education as a process of bringing desirable changes through instruction and defines the various types of education. It notes that extension education aims to disseminate useful information to rural communities to improve lives. The objectives of extension education are discussed as raising living standards, overall development, and bringing changes in knowledge, skills and attitudes of rural people.
This document discusses limitations of ratio analysis and problems with benchmarking ratios. It explains that ratios are used instead of absolute numbers to simplify analysis and control for factors like company size. However, ratios have limitations due to accounting policies, difficulty assessing industry norms, and creative accounting techniques used to manage earnings. Benchmarking ratios against peers or over time also has problems due to non-comparable data, structural changes in companies, and changes in accounting methods.
This document provides an introduction to financial management. It defines financial management and identifies the roles of financial managers. It also outlines the basic forms of business organization - sole proprietorship, partnership, and corporation - and discusses the advantages and disadvantages of each. The goals of a company are also addressed, stating that the primary goal is to maximize shareholder wealth through increasing share prices over the long run. Financial markets and institutions are introduced, distinguishing between money markets and capital markets as well as primary and secondary markets.
Short term financing refers to arranging external funds to meet a firm's needs for one year or less. Firms may need short term financing if their cash flow from operations is insufficient for growth or they prefer borrowing now rather than waiting to save enough. Common sources of short term financing include trade credit, accrued expenses, bank financing like overdrafts and loans, commercial paper, and factoring. Factoring involves a firm selling its account receivables to a third party for cash flow.
Questionnaire for the survey of electronics market(for school/college projects)Dan John
The document is a 15 question questionnaire about consumer electronics. It asks respondents for their name, age, gender and occupation. It then asks questions to gauge the respondent's satisfaction with consumer electronics brands, purchase history of electronic gadgets, preferences between brands like Samsung and Apple, and perceptions of Samsung's products and market position.
The document discusses the three main categories of finance: public finance, corporate finance, and personal finance. Public finance involves the government's role in the economy through taxation, spending, and stabilization policies. Corporate finance focuses on maximizing shareholder value and profitability through investment, financing, and dividend decisions. Personal finance encompasses individuals' and households' financial planning, including budgeting, protection, taxes, investments, retirement, and estate planning.
Standard Chartered Bank and Mahindra Finance use different sources of long-term and short-term finance. Standard Chartered Bank relies more on equity capital (58%) and internal accruals like reserves and surplus (24%). It uses less debentures (20%) and term loans (8%). In contrast, Mahindra Finance has lower equity capital (42%) but higher use of debentures (33%) and both long-term and short-term term loans (13%). While Standard Chartered Bank has less dependence on outside sources, Mahindra Finance relies more on external financing through debentures and loans.
The document provides a template for an HR manager's key performance indicator (KPI) table. It includes instructions on defining key result areas, selecting KPIs, assigning weights and targets for each KPI, tracking actual results, calculating scores, and using the final score to determine bonuses, salary increases, and promotions. The template and additional HR tools can be downloaded from www.exploreHR.org.
This document discusses a study on working capital management at Sudha Agro Oil and Chemical Industries Limited in Samalkota, India. It provides background on the oil and chemical industry in India and the company. The methodology, objectives, and limitations of the study are described. The document outlines the various chapters that will analyze the company's working capital management based on its financial statements over the last 5 years. It aims to assess the company's financial position, profitability, and viability through financial ratio analysis and interpretation.
Marketing involves planning and executing the conception, pricing, promotion, and distribution of goods and services to create exchanges that satisfy objectives. It is defined as identifying and satisfying customer needs profitably by managing the exchange process. Marketing promotes product awareness, boosts sales, and builds company reputation through both online and offline channels as well as word-of-mouth.
The document discusses the macro economic environment and financial markets in India. It describes the money market and its components like call money, treasury bills, commercial bills, and commercial paper. It also discusses the organized and unorganized segments of the money market. The capital market is described along with the gilt-edged market and corporate securities market. Reforms to strengthen the capital market are also summarized.
The document discusses marketing definitions from various organizations and the importance and concepts of marketing. It provides 3 definitions of marketing: 1) activities involved in creating time, place and possession utilities (American Marketing Association); 2) planning and executing the conception, pricing, promotion and distribution of ideas, goods and services to create exchanges (American Marketing Association); 3) identifying, anticipating and satisfying customer requirements profitably (Chartered Institute of Marketing). It also discusses the marketing concept and different marketing management tasks including conversional, stimulational, developmental, remarketing, synchro, maintenance, demarketing, and counter marketing.
This document discusses working capital management. It defines working capital as the difference between current assets and current liabilities, and that it refers to capital required to meet daily business operations. It also discusses types of working capital sources, concepts of working capital including gross and net concepts, factors that affect working capital, and methods of estimating working capital requirements such as the operating cycle method. The document emphasizes the importance of working capital management and its objectives to decide optimal levels of investment in current assets and sources of short-term financing.
This document discusses the management of working capital. It defines working capital as the difference between current assets and current liabilities. It discusses the importance of working capital management and outlines various aspects such as determining the optimal level of investment in inventory, receivables, and cash. It also discusses sources of working capital finance including both long-term and short-term sources. The document provides formulas for calculating levels related to inventory management and outlines the Tandon Committee's recommendations for maximum permissible bank finance.
The document discusses working capital management. It defines working capital as the difference between current assets and current liabilities, and the goal as ensuring sufficient liquidity to meet short-term obligations. It also discusses managing key elements like inventories, receivables, payables and cash. Proper working capital management involves forecasting needs and determining appropriate financing sources to maintain optimal levels of current assets.
Mba iii-advanced financial management [10 mbafm321]-notesAnita Nadagouda
The document discusses the topics of working capital management over 8 modules. Module 1 defines working capital and discusses determining optimal levels of current assets and sources of working capital financing. It describes the need for adequate working capital management and concepts like gross and net working capital. Module 2 covers cash management strategies like cash forecasting. Module 3 discusses receivables management through credit policies and evaluation. Module 4 covers inventory management techniques. Later modules discuss capital structure, dividend policy, hybrid financing, corporate financial modeling, and financial management of sick companies.
This document outlines learning outcomes related to working capital management. It discusses understanding the meaning, need, importance and components of working capital. It also covers estimating working capital requirements, managing inventory, receivables, payables, and financing working capital. The chapter is divided into six units covering introduction to working capital management, treasury and cash management, inventory management, receivables management, payables management, and financing working capital.
Okay, let me calculate the working capital requirement step-by-step:
1) Raw Material for 60000 units
= 60000 * 60% of Rs. 5 = Rs. 18,00,000
2) Work in Progress for 60000 units
= 60000 * 10% of Rs. 5 = Rs. 3,00,000
3) Finished Goods for 60000 units
= 60000 * 20% of Rs. 5 = Rs. 6,00,000
4) Debtors for 60000 units at selling price of Rs. 5 per unit
= 60000 * Rs. 5 = Rs. 3,00,000
5) Creditors for 2
Working capital refers to a company's short-term assets and liabilities. There are two main concepts of working capital - gross working capital, which is the total investment in current assets, and net working capital, which is the difference between current assets and current liabilities. A company's working capital requirements are determined by factors like its nature of business, production cycle, and seasonal needs. There are different approaches to financing working capital, including the hedging approach of matching debt maturities to needs, the conservative approach of financing all current assets with long-term debt, and the aggressive approach of relying more on short-term debt.
This document discusses working capital management. It defines working capital as current assets minus current liabilities. Working capital management refers to monitoring current assets and liabilities to ensure efficient company operations. Gross working capital are current assets, while net working capital is the difference between current assets and liabilities. Permanent working capital is always required, while temporary/variable working capital fluctuates. Factors like inventory, cash, receivables, and the operating cycle must be managed to maintain adequate working capital levels.
The document discusses factors affecting working capital in a manufacturing firm. It defines working capital and outlines the operating cycle from procuring raw materials to receiving payment from customers. Key factors determining working capital requirements include industry nature, sales volume, inventory levels, credit terms, and business cycles. Both excess and inadequate working capital can be problematic for businesses.
This document discusses working capital management. It defines working capital as a company's investment in short-term assets like cash, accounts receivable, and inventory. It also defines concepts like gross working capital, net working capital, and operating cycle. The document emphasizes the importance of managing working capital and outlines different methods for estimating working capital needs. It also discusses the components of the operating cycle and how receivables and inventory are managed.
This document provides an overview of Cadmach Machinery Company Private Limited, including its products, clients, and financial analysis. It discusses Cadmach's product lines, key customers in India and internationally, and accounting fundamentals. The document then analyzes Cadmach's financial performance and position over multiple years through ratio analysis and an examination of working capital management. Overall, it finds that Cadmach's profit and return on invested capital have increased in recent years.
Financial Management II - (Chapter 2-5).pdftemamoh2018
This document discusses principles of working capital management. It defines working capital as current assets used in operations, including cash, accounts receivable, inventory, and other current assets. Net working capital is current assets minus current liabilities. The document also discusses the cash conversion cycle, which is the time between a firm paying for supplies and collecting payment from customers, less any period where customer payments can be delayed. Efficient working capital management is important for business liquidity and profitability.
This document provides an overview of working capital. It defines working capital as a measure of liquidity and efficiency that includes current assets like cash, inventory, and accounts receivable, as well as current liabilities like accounts payable. It discusses the different types of working capital based on balance sheet views like gross and net working capital as well as operating cycle views like permanent/fixed and temporary/variable working capital. The document also covers topics like receivables management, determinants of working capital, issues in management, and different approaches to financing current assets.
This document discusses the importance of working capital management for businesses. It defines working capital as current assets minus current liabilities. This includes items like inventory, accounts receivable, cash balances, accounts payable, accrued expenses, taxes payable and short term loans. Maintaining adequate working capital is important for businesses to ensure they have enough cash flow for daily operations and to pay upcoming bills. Poor working capital management can lead to overcapitalization or overtrading, which can threaten a business' survival. The document emphasizes the need to balance current assets and liabilities to minimize risk and maximize returns.
This document provides an assessment of the working capital requirements for Rushabh InfoSoft Ltd. It discusses various components that make up working capital, including raw materials, work in process, finished goods, receivables, and expenses. It outlines methods to calculate requirements for each component based on historical data, including average stocking periods and operating cycles. The document also discusses concepts like margin requirements and formats used to evaluate working capital needs to determine the appropriate levels of bank financing.
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.
Working Capital refers to the capital available for conducting day-to-day business operations. It is calculated as current assets minus current liabilities. The document discusses various aspects of working capital including its components, types, importance, determinants and approaches to estimating working capital needs. There are different approaches to determining working capital requirements like industry norm approach, economic modeling approach and strategic choice approach. Key determinants include the nature of business, production and business cycles, credit and production policies, growth plans and profit levels. The goal is to ensure sufficient liquidity to meet operational expenses and maturing short-term debt obligations.
This document discusses the concept and importance of working capital management. It defines working capital as the capital required for day-to-day operations of a business, including funds used for purchasing raw materials, paying salaries and other expenses. There are two concepts of working capital - quantitative, which refers to total current assets, and qualitative, which refers to current assets minus current liabilities. Proper management of working capital is important to ensure smooth business operations, maximize profits and avoid failure due to lack of funds.
This study examines the impact of working capital management on the profitability of 58 small manufacturing firms in Mauritius over the period of 1998-2003. The results show that firm profitability increases with efficient working capital management, measured by lower accounts receivable and accounts payable days and an optimal cash conversion cycle. Specifically, higher accounts receivable days negatively impacts profitability while higher accounts payable days positively impacts it. The paper and printing industry demonstrated the most effective working capital management practices and highest profitability, suggesting it could serve as a model for other industries. Further research with more firms is needed to better understand industry differences in working capital management strategies.
1. MANAGEMENT OF WORKING CAPITAL
1. Meaning and Types of Finance:
Finance
- Finance is the Art & Science of Managing Money
- Finance is the Art of passing currency from hand to hand until it finally disappears
Types & Sources of Finance
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Long Term Sources of Finance Short Term Sources of Finance
- Finance required to meet Capital Expenditure - Finance required to meet day-to-day Business requirements
- Also, known as Fixed Capital Finance - Also, known as Working Capital Finance
2. Working Capital Management:
Working Capital (WC)
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Basics regarding WC Classification/Type of WC Methods of estimating WC
- Meaning of WC A On the Basis of Concept - Conventional Method
- Working Capital Concept (i) Gross Working Capital - Operating Cycle Method
- Factors Affecting WC (ii) Net Working Capital - Cash Cost Method
- Meaning of WC Management (Positive & Negative Working Capital) - Balance Sheet Method
- Importance of WC Management B On the Basis of Periodicity
(i) Fixed / Permanent Working Capital
(Regular & Reserve Margin/ Cushion WC)
(ii) Variable Working Capital
(Seasonal & Special Working Capital)
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2. Meaning of Working Capital:
- Working Capital is the amount of Capital that a Business has available to meet the day-to-day cash requirements of its operations
- Working Capital is the difference between resources in cash or readily convertible into cash (Current Assets) and organizational commitments for which cash
will soon be required (Current Liabilities)
- It refers to the amount of Current Assets that exceeds Current Liabilities (i.e. CA - CL)
- Working Capital refers to that part of the firm’s Capital, which is required for Financing Short-Term or Current Assets such as Cash, Marketable Securities,
Debtors and Inventories. Working Capital is also known as Revolving or Circulating Capital or Short-Term Capital
Working Capital Concepts:
- Gross Concept: It means Current Assets. This is knows as Quantitative aspect of Working Capital
(Focus is on (i) Optimum Investment in Current Assets and (ii) Financing of Current Assets)
- Net Concept: It means difference between Currents Assets & Current Liabilities. This is knows as Qualitative aspect of Working Capital
(Focus is on (i) Liquidity Position of the Firm and (ii) WC Amount that can be financed by Permanent sources of Funds)
Meaning of Operating Cycle/Working Capital Cycle:
- Cash Raw-Materials Work-in-Process Finished Goods Cash
Factors affecting Working Capital/ Determinants of Working Capital:
- Nature of Business/Industry; Size of Business/Scale of Operations; Growth prospects
- Business Cycle; Manufacturing Cycle; Operating Cycle & Rapidity of Turnover;
- Operating Efficiency; Profit Margin; Profit Appropriation
- Depreciation Policy; Taxation Policy; Dividend Policy and Government Regulations
Approaches (Methods) of estimating Working Capital:
- Conventional Method: Matching of Cash Inflows & Outflows. This method ignores Time Value of Money
- Operating Cycle Method: Debtors + Stock (RM/WIP/FG) - Creditors. This method takes into Account length of Time which is required to convert cash into
resources, resources to final product, final product to Debtors and Debtors to Cash again.
- Cash Cost Technique: Working Capital forecast is done on Cost Basis (i.e. taking P&L items into account)
- Balance Sheet Method: Working Capital forecast is done on various Assets & Liabilities (i.e. taking B/S items into account)
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3. Meaning of Working Capital Management:
- Working Capital Management is concerned with the problems that arise in attempting to manage the Current Assets, Current Liabilities and the inter-
relationship that exists between them
- Working Capital Management means the deployment of current assets and current liabilities efficiently so as to maximize short-term liquidity
- Working capital management entails short term decisions - generally, relating to the next one year period - which are "reversible"
- Two Steps involved in the Working Capital Management:
(i) Forecasting the Amount of Working Capital
(ii) Determining the Sources of Working Capital
Importance of Working Capital Management:
- Working Capital is the Life Blood of the Business
- Fixed Assets (Long Term Assets) can be purchased on Lease/Hire Purchase but Current Assets cannot be
- Liquidity V/s Profitability
Objectives of Working Capital Management:
- Deciding Optimum Level of Investment in various WC Assets
- Decide Optimal Mix of Short Term and Long Term Capital
- Decide Appropriate means of Short Term Financing
Process/Steps Involved in Working Capital Management:
- Forecasting the Amount of Working Capital
- Determining the Sources of Working Capital
Different Aspects of Working Capital Management:
- Management of Inventory
- Management of Receivables/Debtors
- Management of Cash
- Management of Payables/Creditors
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4. MANAGEMENT OF INVENTORY
1. Meaning of Inventory and Inventory Management:
Inventory
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Meaning of the Term Inventory Meaning of the Term Inventory Magt.
Inventory means Tangible property which is held: Inventory Management means:
- For Sale in the ordinary course of Business OR; - An Optimum Investment in the Inventories
- In the process of Production (i.e. WIP) for Sale OR; - Striking balance between Adequate Stock & Investment
For Consumption in the production of good & services which will Maintain Adequate Stock and that too by keeping Investment at
- -
be used for sale in the ordinary course of Business Minimum Level. It is also known as Optimum Level of Inventory
Inventory Includes Raw-Material, FG, WIP, Spares, Consumables etc. Maintaining Inventory at the Optimum Level is called Inventory Magt.
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5. 2. Various Aspects relating to Inventory Management:
Various Aspects of Inventory Management
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Objectives of Inventory Tools of Inventory Factors Determining Optimum
Management Management Level of Inventory
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Operating Objectives Financial Objectives General Factors Specific Factors
- Availability of Materials - Economy in Purchasing - Nature of Business - Seasonal Nature of Raw Materials
- Promotion of Manufacturing - Optimum Investment & - Anticipated Volume of Sales and Demand for Finished Goods
Efficiency Efficient use of Capital - Operations Level - Length & Technical Nature of the
- Minimizing the Wastage - Reasonable Price - Price Level Variations Production process
- Better Service to Customer - Minimizing Cost - Availability of Funds - Style factor in the End Product
- Control of Production Level - Attitude of the Management - Terms of Purchase
Optimum Level of Inventories - Supply conditions
- Time Factor
- Price Level Variation
- Loan Facility
- Management Policies
- Other Factors
Tools Meaning/Importance
- Fixation of Levels of Inventory Maximum; Minimum, Re-order and Danger Level
- ABC Analysis Small; Medium & High Number/Usage
- Perpetual inventory System Restoration of the Stock Issued
- VED Analysis Vital, Essential and Desirable
- FSN Analysis Fast Moving, Slow Moving & Non Moving
- Periodical Inventory Valuation Annual Stock Taking
- Economic Order Quantity (EOQ) Analysis Ordering Cost & Carrying Cost
- HML Tool High, Medium & Low (Unit Price)
- SDE Tool Scarce, Difficult & Easy (Procurement Difficulty)
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6. 3. Important Formulas:
(a) Maximum Level: (Maximum Quantity of Stock to be held)
Maximum Level = (Reorder Level + Reorder Quantity) – (Minimum Usage x Minimum Reorder Period)
(b) Minimum Level: (Minimum Quantity of Stock to be held)
Minimum Level = (Reorder Level) – (Normal Usage x Normal Reorder Period)
(c) Reorder Level: (Demand in the Lead Time)
Reorder Level = (Maximum Consumption x Maximum Reorder or Delivery Period) OR
Reorder Level = (Minimum Level) + (Normal Consumption x Normal Delivery Period)
(d) Danger Level:
Danger Level = (Minimum Rate of Consumption x Emergency Delivery Time) OR
Danger Level = (Average Consumption x Maximum Reorder period for Emergency Purchases)
(e) Lead Time:
Time Lag between the Indenting and Receipt of Materials OR
Time normally required for obtaining fresh supply of Materials
(f) Economic Order Quantity:
EOQ = 2AB = 2 x Ordering Cost x Demand = Lowest of (Carrying Cost + Ordering Cost)
CS Holding Cost
Where, A = Annual Usage/Annual Consumption
B = Buying Cost/Ordering Cost
C = Cost Per Unit
S = Storage Cost/Cost of Carrying Inventory
Assumptions of EOQ Model:
(i) Known and Constant Demand (ii) Known and Constant lead time
(iii) Instantaneous receipt of material (iv) No quantity discounts
(v) Only order (setup) Cost and holding cost (vi) No stock-outs
(vii)Supply of the Goods is Satisfactory (viii)Prices of the goods are Stable
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7. MANAGEMENT OF RECEIVABLES
1. Meaning of Receivables and Receivables Management:
Receivables
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Meaning of the Receivables Meaning of the Term Receivables Magt.
- It is amount/Debt which is receivable for the goods or - Maintain Receivables at a level at which there is a
Services provided on Credit trade-off between Profitability & Cost
- Also known as Trade, Debtors, Sundry Debtors, Trade - This is called Optimum Level of Receivables
Receivables, Book Debts - Three Aspects of Managing Accounts Receivalbes
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Characteristics Objectives Costs of Maintaining
- It Involves an Element of Risk - Increase Sales - Cost of Financing
- It is based on Economic Value - -
Increase in Profit (Volume Administrative Cost
- Cash Payment will be made - -
Increase & Margin Increase) Collection Costs
in Future -
Strategy to Face Competition Defaulting Costs
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Establishing Credit Policy Establishing Collection Policy of Concern Control of the Account Receivables
- Determining the Level of Credit Sales - Determining Policy & Procedures - It Means maintaining of the Account
- Determining of the Credit Standards to be followed for the collection of Receivables at the Minimum possible
- Determining of the Credit Terms the Account Receivables Level
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8. 2. Factors Determining Size of Investment in Receivables:
Factors
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General Factors Specific Factors
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- Type & Nature of Business - Price-Level Variations - Volume of Credit Sales - Credit Policies
- Volume of Anticipated Sales - Availability of Funds
- Volume of the Business - Attitude of the Executives
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Credit Standards Credit Terms Credit Rating
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Credit Period Discount Terms 5 C’s
- Trade Discount - Character
- Cash Discount - Capacity
- Quantity Discount - Capital
- Collateral
- Conditions
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9. MANAGEMENT OF CASH
1. Meaning & Importance of Cash & Cash Management:
Cash & Cash Management
- Cash means Liquid Assets that a Business Owns. It includes Cheques, Money Orders & Bank Drafts
- Cash Management means efficient Collection & Disbursement of cash and any Temporary Investment of Cash
(Maintaining Optimum Level of Cash in an Organization is called Cash Management)
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Objectives of Cash Management Motives of Holding Cash Importance of Cash Management
- To meet Cash Disbursement as per Payment Schedule - Transaction Motive - Most Significant & Least Productive Asset
- To meet Cash Collection as per Repayment Schedule - Speculative Motive - Difficult to predict Cash Flows (Inflows & Outflows)
- To minimize funds locked up as Cash Balance by - Precautionary Motive - Smallest Portion of Total Current Assets
maintaining Optimum Cash Balance - Cash Planning
- Cash Forecasting:
(a) Receipt & Disbursement Method
(b) Adjusted Net Income Method
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10. 2. Meaning of Cash Flows:
Cash Flows
- Cash Flows means Cash Inflows and Cash Outflows
- If Cash Inflows are more than Cash Outflows, it is Positive Cash Flow and vice-versa
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Methods of Accelerating Cash Inflows Method of Decelerating Cash Outflows
- Prompt Payment by Customers - Paying on Last Date
- Quick conversion of payment into Cash - Payable through Draft
- Decentralized Collection - Adjusting Payroll Funds
- Lock Box System - Centralization of Payments
- Inter-Bank Transfer
- Making use of Float
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11. 3. Meaning & Importance of Cash Budget:
Cash Budget
- Cash Budget means estimation of Cash Receipt and Cash Disbursement during a future period of Time
- Cash Budget is a forecast of future Cash Receipts and Cash Disbursement over various intervals of Time
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Functions/Importance of Cash Budget Methods of Preparing Cash Budget Investment of Surplus Cash
- Helpful in Planning - Receipts & Payment Method - Treasury Bills
- Forecasting the Future Needs of Funds - Adjusted Profit & Loss Account Method - Negotiable Certificate of deposits
- Maintenance of Ample Cash Balance - Balance Sheet Method - Unit 1964 Scheme
- Controlling Cash Expenditure - Ready Forwards
- Evaluation of Performance - Badla Financing
- Testing the Influence of Proposed Expansion - Inter-Corporate Deposits
- Sound Dividend Policy - Three Months Deposits
- Basis of Long Term Planning & Co-ordination - Bill Discount
- Investment in Market Securities
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12. SOURCES OF WORKING CAPITAL FINANCE
1. Various Sources of securing Working Capital Finance:
Sources of Finance
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Long Term Sources Other Sources Short Term Sources
(Regular Working Capital) (Seasonal Working Capital)
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Internal Sources External Sources Internal Sources External Sources
- Retained Earnings - Issue of Equity Shares - Accrual Accounts - Trade Credit
(Profit & Loss A/c) - Issue of Preference Shares (Provision for Tax) (Open Acct/Acceptance)
- Sale of FA’s - Issue of Debentures - Depreciation Funds - Public Deposit
- Loans from FI’s - Customer Advances
- Security from Employees - Credit Papers
- Security from Customers - Indigenous Bankers
(Private Individuals)
- Govt. Assistance
- Commercial Papers - Bank Credit
- Zero Coupon Bonds (Loans/OD/CC/BD)
- Factoring - Business Finance Co’s
(Recourse & Non Recourse)
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13. 2. Approaches for Determining Financing Mix:
Financing Mix
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Hedging Approach Conservative Approach Aggressive Approach Trade-off Approach
- Permanent WC - All requirements from - All requirements from - Avg. of Maximum and
(Financed from Long Term Funds Short Term Funds Minimum WC requirement
Long Term Funds) - Short Term Funds to - Only Part use of Long - Avg. to be funded by
- Temporary WC be used in case of Term Funds Long Term Funds
(Financed from Emergency - Balance to be funded by
Short Term Funds) Short Term Funds
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14. 3. Maximum Permissible Bank Finance (Tandon Committee Recommendation):
MPBF Methods/Workings/Calculations
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Method I Method II Method III
Total Current Assets x Total Current Assets x Total Current Assets x
- Total Current Liabilities# x - 25% from Long Term Sources x - Core Current Assets x
= Working Capital Gap xx = Net Current Assets xx = Net WC Current Assets xx
- 25% from Long Term Sources x - Total Current Liabilities# x - 25% from Long Term Sources x
= MPBF xx = MPBF xx = Net Currents Assets xx
- Total Current Liabilities# x
= MPBF xx
# Note: Total Current Liabilities means Liabilities excluding Bank Borrowings to be taken into account for Calculation
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