This document discusses working capital management. It defines working capital as the capital required for day-to-day business operations, including raw materials, expenses, production, inventory, and receivables. Working capital is classified as gross, net, permanent/fixed, and temporary/variable. Factors that determine working capital requirements include the nature of business, production cycles, inventory turnover, and growth plans. Maintaining adequate working capital provides advantages like cash discounts and creditworthiness, while inadequate working capital can cause liquidity issues and lost opportunities. The document also covers projecting working capital needs based on planned activity levels and components like raw materials, work in progress, finished goods, debtors, and creditors.
Working capital represents the liquid assets available to a business and is calculated as current assets minus current liabilities. There are many factors that influence the amount of working capital required, including the nature of the business, scale of operations, production cycle, credit terms, availability of raw materials, growth prospects, competition levels, inflation, and operating efficiency. Proper management of working capital is essential for businesses to ensure they have sufficient short-term funds to pay debts and cover expenses as they arise.
The document discusses working capital, which refers to the capital required to finance short-term operating needs of a business, such as inventory and receivables. It defines working capital as the difference between current assets and current liabilities. Managing working capital is important as it affects a firm's cash flows and ability to meet short-term obligations. The document also outlines different types of working capital and factors that influence working capital needs, such as the nature of the business and production cycles.
This document discusses trade credit, accrued expenses, and deferred income. Trade credit involves a supplier sending goods to a buyer on credit terms. Accrued expenses are expenses incurred but not yet paid, like accrued wages. Deferred income is money received before it is earned, like rent paid in advance. The key difference between accrued expenses and deferred income is that accrued expenses are costs already incurred but unpaid, while deferred income is money received before being earned.
Ratio analysis is a technique used to analyze and interpret financial statements. It involves calculating ratios that establish relationships between financial data and comparing them over time, against industry standards, or between companies. Key ratios help evaluate a company's liquidity, operational efficiency, and profitability. Ratio analysis provides a quick assessment of a company's financial health and performance.
This document provides an overview of inventory management techniques. It begins with defining inventory and its objectives. It then covers various inventory analysis methods like ABC analysis, which categorizes inventory items into A, B and C based on their value and demand. Other techniques discussed include FSN analysis to classify items based on consumption pattern, and make or buy decision analysis to determine whether to manufacture or outsource items. The document aims to explain key inventory management strategies and analysis methods used by companies.
This document discusses inventory management. It defines inventory and explains that good inventory management is important for business success. It outlines various inventory classification systems like ABC analysis, which sorts inventory into A, B, and C categories based on value. Additional classification systems covered include VED, HML, SDE, FSN, and XYZ analysis, which categorize inventory based on factors like criticality, value, procurement lead time, and movement frequency. The document also discusses inventory counting systems and key effectiveness measures for evaluating inventory management.
Capital structure refers to how a corporation finances its assets through a combination of equity, debt, or securities. A firm's capital structure composition includes liabilities like debt and equity shares. Equity shares make shareholders owners but do not burden the company, while debt provides tax advantages but requires regular payments. An optimal capital structure considers advantages and disadvantages of different sources to maximize utilization of resources.
This document discusses working capital financing. It defines working capital as the capital required for day-to-day operations of a business, such as purchasing raw materials and meeting salary expenses. It then discusses concepts of working capital like gross, net, permanent, and temporary working capital. The importance of adequate working capital is outlined, noting that it helps maintain business solvency and allows a business to take advantage of opportunities. Methods of financing both long-term and short-term working capital are described, including the roles of equity, debt, retained earnings, and bank financing. Regulation of bank financing by the Reserve Bank of India is also summarized.
Working capital represents the liquid assets available to a business and is calculated as current assets minus current liabilities. There are many factors that influence the amount of working capital required, including the nature of the business, scale of operations, production cycle, credit terms, availability of raw materials, growth prospects, competition levels, inflation, and operating efficiency. Proper management of working capital is essential for businesses to ensure they have sufficient short-term funds to pay debts and cover expenses as they arise.
The document discusses working capital, which refers to the capital required to finance short-term operating needs of a business, such as inventory and receivables. It defines working capital as the difference between current assets and current liabilities. Managing working capital is important as it affects a firm's cash flows and ability to meet short-term obligations. The document also outlines different types of working capital and factors that influence working capital needs, such as the nature of the business and production cycles.
This document discusses trade credit, accrued expenses, and deferred income. Trade credit involves a supplier sending goods to a buyer on credit terms. Accrued expenses are expenses incurred but not yet paid, like accrued wages. Deferred income is money received before it is earned, like rent paid in advance. The key difference between accrued expenses and deferred income is that accrued expenses are costs already incurred but unpaid, while deferred income is money received before being earned.
Ratio analysis is a technique used to analyze and interpret financial statements. It involves calculating ratios that establish relationships between financial data and comparing them over time, against industry standards, or between companies. Key ratios help evaluate a company's liquidity, operational efficiency, and profitability. Ratio analysis provides a quick assessment of a company's financial health and performance.
This document provides an overview of inventory management techniques. It begins with defining inventory and its objectives. It then covers various inventory analysis methods like ABC analysis, which categorizes inventory items into A, B and C based on their value and demand. Other techniques discussed include FSN analysis to classify items based on consumption pattern, and make or buy decision analysis to determine whether to manufacture or outsource items. The document aims to explain key inventory management strategies and analysis methods used by companies.
This document discusses inventory management. It defines inventory and explains that good inventory management is important for business success. It outlines various inventory classification systems like ABC analysis, which sorts inventory into A, B, and C categories based on value. Additional classification systems covered include VED, HML, SDE, FSN, and XYZ analysis, which categorize inventory based on factors like criticality, value, procurement lead time, and movement frequency. The document also discusses inventory counting systems and key effectiveness measures for evaluating inventory management.
Capital structure refers to how a corporation finances its assets through a combination of equity, debt, or securities. A firm's capital structure composition includes liabilities like debt and equity shares. Equity shares make shareholders owners but do not burden the company, while debt provides tax advantages but requires regular payments. An optimal capital structure considers advantages and disadvantages of different sources to maximize utilization of resources.
This document discusses working capital financing. It defines working capital as the capital required for day-to-day operations of a business, such as purchasing raw materials and meeting salary expenses. It then discusses concepts of working capital like gross, net, permanent, and temporary working capital. The importance of adequate working capital is outlined, noting that it helps maintain business solvency and allows a business to take advantage of opportunities. Methods of financing both long-term and short-term working capital are described, including the roles of equity, debt, retained earnings, and bank financing. Regulation of bank financing by the Reserve Bank of India is also summarized.
This document provides an overview of capital budgeting. It defines capital budgeting as the planning process used to determine long-term investments worth funding through a firm's capital structure. The document outlines the importance, process, techniques and acceptance criteria for capital budgeting. It describes techniques like payback period, accounting rate of return, net present value and profitability index. The overview emphasizes that capital budgeting decisions require consideration of factors like profitability, risk and cash flows over long time horizons.
Working capital Management notes for MBA students to prepare for exam. The file contains ample theory and solved problems on working capital management
The document discusses dividend policy and provides details about:
1. The meaning of dividend and dividend policy, and factors that affect dividend policy such as ownership considerations, nature of business, and investment opportunities.
2. Different types of dividends including cash dividend, stock dividend, property dividend, and debenture dividend.
3. Dividend policies of 5 major Indian IT companies - Tata Consultancy Services, Wipro, Infosys, HCL Technologies, and Larsen & Toubro Infotech - and their dividend yields for the fiscal year 2013.
A debenture is a type of loan issued by a company to raise funds. There are different types of debentures based on security, redemption period, record keeping, and convertibility. Debentures offer companies a way to raise funds for a specific period without diluting ownership, but carry more risk than shares if the company fails to repay on time. Debenture holders are creditors entitled to interest payments, while shareholders are owners entitled to potential dividend payments from company profits.
Issue, forfeiture and re issue of shares by N. Bala Murali Krishnabala13128
The document discusses various aspects of accounting for share capital. It defines types of share capital such as authorized, issued, subscribed, called up and paid up share capital. It explains journal entries for receipt and payment of application money, allotment money, call money. It discusses accounting treatment of shares issued at premium and discount. It also covers concepts of oversubscription of shares, calls in arrears, calls in advance, forfeiture and reissue of shares. The document provides detailed explanation of these concepts along with related journal entries.
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
Capital rationing involves placing restrictions on new investments by imposing a higher cost of capital or setting a ceiling on budget sections. Companies may implement it when past returns were lower than expected, to focus on completing existing projects. There are two types: soft rationing imposed by management, and hard rationing limited by external capital sources. Selection involves arranging projects by profitability measures like IRR, NPV, and PI to choose the optimal combination given limited funds.
This case study examined the implementation of an integrated materials management strategy on a large 4.2 billion pound civil infrastructure project in the UK. The strategy focused on pulling materials as needed, delivering them to the work site on time, minimizing vehicles on site, and increasing workflow reliability. It defined objectives based on these principles, designed a system around marketplaces, collection runs, supplier agreements, satellite stores and inventory management, then implemented the strategy in three steps. The results included cost savings, high supply reliability, reduced inventory and lead times, improved performance, transparency and standardization.
The document defines cost of capital as the cost of funds used to finance a business. It can refer to the cost of equity or debt depending on the financing method used. Companies often use a mix of debt and equity. The cost of each source depends on its risk level - higher risk investments demand greater returns. Total return demanded has two factors: a risk premium and the prevailing risk-free rate. The cost of each source can be expressed as a percentage return.
The document discusses concepts related to working capital management. It defines working capital as the difference between current assets and current liabilities. It discusses various types of working capital like gross, net, permanent, temporary, etc. It explains the working capital cycle and requirements of working capital for different types of businesses. It discusses objectives, measurement, and management of working capital and provides methods to estimate working capital requirements like percentage of sales method and regression analysis method.
The document discusses Whiz Calculator's implementation of a new sales expense budgeting method. Bernard Riesman, the new president, found the old incremental budgeting method unsatisfactory because expense estimates were uncertain and did not adjust for changing sales conditions. The new method sets variable expense standards based on a certain amount per sales dollar. It establishes a minimum sales volume threshold. This flexible budgeting method is more accurate than the old one in relating expenses to expected output. It should be adopted, but the company could improve it by gathering more market data to account for variable factors between regions.
The document defines and describes 5 types of capital for a company:
1) Authorized capital is the maximum amount a company is allowed to raise as specified in its Memorandum of Association.
2) Issued capital is the part of authorized capital that is offered for subscription to members.
3) Subscribed capital is the nominal value of issued shares that have been purchased by members.
4) Called up capital is the portion of subscribed capital that the company has requested members pay.
5) Paid up capital is the portion of the called up capital that members have actually paid.
Debentures are a type of loan taken by companies. They are secured by assets of the company and pay a fixed rate of interest. The key features of debentures are the maturity date when principal is repaid, security over company assets in default, and potential convertibility to equity. There are different types of debentures based on security, tenure, registration, coupon structure, and convertibility. The main advantages of debentures are a fixed source of funds for a period without shareholder control. The disadvantages include fixed repayment, limited funds raised, and risk of insolvency.
Long-term finance is needed for purchasing fixed assets that are used over many years. Sources of long-term finance include shares (equity and preference), debentures, retained earnings, term loans and loans from financial institutions. Equity shares carry more risk but offer higher dividends and voting rights, while preference shares have a fixed dividend rate but no voting rights. Debentures are loan certificates issued by companies to borrow funds, with characteristics like a fixed interest rate and repayment date.
The document discusses dividend policy and its various aspects. It defines dividend and explains the relevance and irrelevance concepts of dividend. It describes different approaches to dividend policy including the residual approach, MM model, Walter's approach and Gordon's approach. It also discusses determinants of dividend policy, types of dividend policies and forms of dividend including cash, stock and property dividends. The legal aspects of dividend payment are also summarized.
A warrant is an option to purchase shares of stock at a fixed price. It gives the holder the right, but not the obligation, to buy shares from the issuing company. Warrants are often attached to bonds or preferred shares to make the securities more attractive to investors. The warrant specifies the number of shares that can be purchased, the exercise price, and expiration date. Warrant holders do not receive dividends or have voting rights until the warrant is exercised to purchase actual shares. The value of a warrant is determined by factors such as the current share price, exercise price, risk of the underlying shares, and time remaining until expiration.
The document discusses key aspects of budgetary control systems. It defines a budget as a detailed plan for operations over a specific period of time. Budgetary control systems help businesses maximize profits and minimize costs by preparing proper forecasts and controlling costs. The document outlines various types of budgets including production, material, labor, overhead and cash budgets. It also discusses the objectives, advantages and disadvantages of budgetary control systems and classifications of budgets according to time and function. The master budget integrates all functional budgets into a consolidated budget representing the projected profit and loss statement and balance sheet.
The document discusses budgetary control and flexible budgets. It defines budgetary control as the establishment of budgets relating to executive responsibilities and requirements of policy, with the continuous comparison of actual to budgeted results to ensure objectives are met or require revision. Flexible budgets vary based on activity levels, like preparing budgets for production of 7,000 and 9,000 units based on variable and fixed cost schedules. Budgetary control involves planning, coordination, communication, and control to improve overall efficiency.
This document is a presentation on working capital management by students from World University of Bangladesh. It includes the names and IDs of the group members, as well as objectives to analyze working capital management practices of a textile company through ratios and determine problems and suggestions. It discusses concepts of working capital, components of current assets and liabilities, classifications, determinants, control techniques, and importance of adequate but not excessive working capital management.
This document discusses factors that affect working capital requirements for businesses. It defines working capital and distinguishes between gross and net working capital. Some key factors that influence working capital needs include the nature of the business, size, production processes, seasonality, credit policies, and business growth rates. Manufacturing businesses tend to require more working capital due to longer production cycles. Faster inventory turnover and less generous credit terms also reduce working capital needs.
This document provides an overview of capital budgeting. It defines capital budgeting as the planning process used to determine long-term investments worth funding through a firm's capital structure. The document outlines the importance, process, techniques and acceptance criteria for capital budgeting. It describes techniques like payback period, accounting rate of return, net present value and profitability index. The overview emphasizes that capital budgeting decisions require consideration of factors like profitability, risk and cash flows over long time horizons.
Working capital Management notes for MBA students to prepare for exam. The file contains ample theory and solved problems on working capital management
The document discusses dividend policy and provides details about:
1. The meaning of dividend and dividend policy, and factors that affect dividend policy such as ownership considerations, nature of business, and investment opportunities.
2. Different types of dividends including cash dividend, stock dividend, property dividend, and debenture dividend.
3. Dividend policies of 5 major Indian IT companies - Tata Consultancy Services, Wipro, Infosys, HCL Technologies, and Larsen & Toubro Infotech - and their dividend yields for the fiscal year 2013.
A debenture is a type of loan issued by a company to raise funds. There are different types of debentures based on security, redemption period, record keeping, and convertibility. Debentures offer companies a way to raise funds for a specific period without diluting ownership, but carry more risk than shares if the company fails to repay on time. Debenture holders are creditors entitled to interest payments, while shareholders are owners entitled to potential dividend payments from company profits.
Issue, forfeiture and re issue of shares by N. Bala Murali Krishnabala13128
The document discusses various aspects of accounting for share capital. It defines types of share capital such as authorized, issued, subscribed, called up and paid up share capital. It explains journal entries for receipt and payment of application money, allotment money, call money. It discusses accounting treatment of shares issued at premium and discount. It also covers concepts of oversubscription of shares, calls in arrears, calls in advance, forfeiture and reissue of shares. The document provides detailed explanation of these concepts along with related journal entries.
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
Capital rationing involves placing restrictions on new investments by imposing a higher cost of capital or setting a ceiling on budget sections. Companies may implement it when past returns were lower than expected, to focus on completing existing projects. There are two types: soft rationing imposed by management, and hard rationing limited by external capital sources. Selection involves arranging projects by profitability measures like IRR, NPV, and PI to choose the optimal combination given limited funds.
This case study examined the implementation of an integrated materials management strategy on a large 4.2 billion pound civil infrastructure project in the UK. The strategy focused on pulling materials as needed, delivering them to the work site on time, minimizing vehicles on site, and increasing workflow reliability. It defined objectives based on these principles, designed a system around marketplaces, collection runs, supplier agreements, satellite stores and inventory management, then implemented the strategy in three steps. The results included cost savings, high supply reliability, reduced inventory and lead times, improved performance, transparency and standardization.
The document defines cost of capital as the cost of funds used to finance a business. It can refer to the cost of equity or debt depending on the financing method used. Companies often use a mix of debt and equity. The cost of each source depends on its risk level - higher risk investments demand greater returns. Total return demanded has two factors: a risk premium and the prevailing risk-free rate. The cost of each source can be expressed as a percentage return.
The document discusses concepts related to working capital management. It defines working capital as the difference between current assets and current liabilities. It discusses various types of working capital like gross, net, permanent, temporary, etc. It explains the working capital cycle and requirements of working capital for different types of businesses. It discusses objectives, measurement, and management of working capital and provides methods to estimate working capital requirements like percentage of sales method and regression analysis method.
The document discusses Whiz Calculator's implementation of a new sales expense budgeting method. Bernard Riesman, the new president, found the old incremental budgeting method unsatisfactory because expense estimates were uncertain and did not adjust for changing sales conditions. The new method sets variable expense standards based on a certain amount per sales dollar. It establishes a minimum sales volume threshold. This flexible budgeting method is more accurate than the old one in relating expenses to expected output. It should be adopted, but the company could improve it by gathering more market data to account for variable factors between regions.
The document defines and describes 5 types of capital for a company:
1) Authorized capital is the maximum amount a company is allowed to raise as specified in its Memorandum of Association.
2) Issued capital is the part of authorized capital that is offered for subscription to members.
3) Subscribed capital is the nominal value of issued shares that have been purchased by members.
4) Called up capital is the portion of subscribed capital that the company has requested members pay.
5) Paid up capital is the portion of the called up capital that members have actually paid.
Debentures are a type of loan taken by companies. They are secured by assets of the company and pay a fixed rate of interest. The key features of debentures are the maturity date when principal is repaid, security over company assets in default, and potential convertibility to equity. There are different types of debentures based on security, tenure, registration, coupon structure, and convertibility. The main advantages of debentures are a fixed source of funds for a period without shareholder control. The disadvantages include fixed repayment, limited funds raised, and risk of insolvency.
Long-term finance is needed for purchasing fixed assets that are used over many years. Sources of long-term finance include shares (equity and preference), debentures, retained earnings, term loans and loans from financial institutions. Equity shares carry more risk but offer higher dividends and voting rights, while preference shares have a fixed dividend rate but no voting rights. Debentures are loan certificates issued by companies to borrow funds, with characteristics like a fixed interest rate and repayment date.
The document discusses dividend policy and its various aspects. It defines dividend and explains the relevance and irrelevance concepts of dividend. It describes different approaches to dividend policy including the residual approach, MM model, Walter's approach and Gordon's approach. It also discusses determinants of dividend policy, types of dividend policies and forms of dividend including cash, stock and property dividends. The legal aspects of dividend payment are also summarized.
A warrant is an option to purchase shares of stock at a fixed price. It gives the holder the right, but not the obligation, to buy shares from the issuing company. Warrants are often attached to bonds or preferred shares to make the securities more attractive to investors. The warrant specifies the number of shares that can be purchased, the exercise price, and expiration date. Warrant holders do not receive dividends or have voting rights until the warrant is exercised to purchase actual shares. The value of a warrant is determined by factors such as the current share price, exercise price, risk of the underlying shares, and time remaining until expiration.
The document discusses key aspects of budgetary control systems. It defines a budget as a detailed plan for operations over a specific period of time. Budgetary control systems help businesses maximize profits and minimize costs by preparing proper forecasts and controlling costs. The document outlines various types of budgets including production, material, labor, overhead and cash budgets. It also discusses the objectives, advantages and disadvantages of budgetary control systems and classifications of budgets according to time and function. The master budget integrates all functional budgets into a consolidated budget representing the projected profit and loss statement and balance sheet.
The document discusses budgetary control and flexible budgets. It defines budgetary control as the establishment of budgets relating to executive responsibilities and requirements of policy, with the continuous comparison of actual to budgeted results to ensure objectives are met or require revision. Flexible budgets vary based on activity levels, like preparing budgets for production of 7,000 and 9,000 units based on variable and fixed cost schedules. Budgetary control involves planning, coordination, communication, and control to improve overall efficiency.
This document is a presentation on working capital management by students from World University of Bangladesh. It includes the names and IDs of the group members, as well as objectives to analyze working capital management practices of a textile company through ratios and determine problems and suggestions. It discusses concepts of working capital, components of current assets and liabilities, classifications, determinants, control techniques, and importance of adequate but not excessive working capital management.
This document discusses factors that affect working capital requirements for businesses. It defines working capital and distinguishes between gross and net working capital. Some key factors that influence working capital needs include the nature of the business, size, production processes, seasonality, credit policies, and business growth rates. Manufacturing businesses tend to require more working capital due to longer production cycles. Faster inventory turnover and less generous credit terms also reduce working capital needs.
This document discusses working capital and its components. It defines working capital as the capital required to finance short-term operating needs such as inventory, accounts receivable, and cash. It also discusses the operating cycle as the continuous flow of cash being converted into inventory, then receivables, and back into cash. Finally, it notes that companies must determine the optimal level of working capital to support operations without having excess funds tied up in current assets.
The document discusses various inventory control techniques used to manage inventory levels efficiently. It describes ABC analysis which categorizes inventory into A, B, and C items based on annual value and focuses control efforts accordingly. It also explains the economic order quantity (EOQ) model which calculates the optimal order quantity to minimize total costs of ordering and carrying inventory. Finally, it discusses determining reorder levels, minimum stock levels, maximum stock levels, and incorporating a safety stock to account for demand and lead time variability.
The study analyzed the impact of working capital management on the profitability of 58 small manufacturing firms in Mauritius over the period of 1998-2003. The results showed that return on total assets, a measure of profitability, was positively correlated with measures of working capital management efficiency like accounts receivable days and cash conversion cycle. However, it was negatively correlated with accounts payable days. The paper concluded that synchronizing current assets and liabilities is important for small firm profitability and the paper industry showed best practices in working capital management.
This document discusses receivables management. It begins by defining receivables as sales made on credit that represent amounts owed to a firm from customers. Effective receivables management involves establishing credit policies, evaluating customer creditworthiness, and controlling receivables. The objectives are to maximize return on investment in receivables while allowing sufficient sales growth. Key aspects covered include granting credit, costs of receivables management, collection methods, and analysis of receivables aging and customer importance.
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 refers to the funds that a company uses to finance its day-to-day business operations involving current assets such as inventory, cash, and receivables. There are two types: permanent/fixed working capital that is continuously invested in current assets, and temporary/variable working capital needed to meet seasonal demands. Working capital management aims to balance adequate liquidity, risk minimization, and profit maximization by making decisions around investment in current assets and sources of financing like equity, debt, trade credit, etc. The key is determining the optimal working capital level for a given business.
This document provides an introduction and overview of finance and working capital management. It defines finance as the lifeblood of economic activity and discusses the importance of an efficient financial system. It then defines working capital as the capital used for day-to-day business operations, including current assets like inventory, receivables, and cash. The document outlines the objectives of working capital management as maintaining an optimal level of working capital that is neither excessive nor inadequate. It also discusses the different types of working capital and provides an overview of a company's working capital cycle.
A project on working capital management in bhelProjects Kart
The document provides an overview of Bharat Heavy Electricals Limited (BHEL), a large Indian power equipment manufacturing company. It discusses BHEL's history, operations, quality certifications, product range, and power generation capabilities. Specific power projects completed by BHEL in southern and northern India are also listed. In under 3 sentences:
BHEL is a major Indian manufacturer of power generation and industrial equipment, with a history dating back to the 1950s. It has a wide range of thermal, gas, hydro, and industrial products and has completed numerous power projects across India. The document outlines BHEL's operations, certifications, products, power generation capabilities, and lists specific projects in southern and northern regions of India
This document discusses capital budgeting decisions and working capital. It defines working capital as the capital required for a business's day-to-day operations, including current assets like inventory, cash, and accounts receivable. It also discusses the importance of working capital, the need for working capital, different concepts and classifications of working capital, components of working capital, and the operating or working capital cycle.
The document discusses the meaning and importance of working capital. It defines working capital as the capital required for day-to-day business operations, including funds used for raw materials, wages, expenses, and current assets like inventory. There are two concepts of working capital - gross working capital, which is total current assets, and net working capital, which is current assets minus current liabilities. An adequate level of working capital is important for business solvency, goodwill, securing loans, cash discounts, and meeting regular commitments, while too much or too little working capital can both harm a business.
The document provides an introduction to working capital management. It defines working capital as "capital invested in current assets" which are assets that can be converted to cash within a short time. It then discusses key concepts like gross working capital, net working capital, and the operating cycle. The importance of working capital management and determining adequate working capital requirements is emphasized. Techniques for managing current assets like cash, receivables, and inventory are also summarized.
This document discusses the meaning and importance of working capital for businesses. It defines working capital as the capital required for financing short-term assets like inventory, cash, and debtors. There are two concepts of working capital - gross working capital, which is the total current assets, and net working capital, which is current assets minus current liabilities. The document outlines the key components of current assets and current liabilities. It emphasizes the importance of adequate working capital for business solvency, cash flow, and meeting short-term obligations. Both excessive and inadequate working capital can harm a business.
Meaning
Types of working capital
Factors of determining working capital
Operating working capital cycle
Importance of operating cycle concept
Internal factors
External factors
General factors
Types of capital structure
Characteristics of security
Working capital management is important for short-term financial decisions and liquidity. It involves managing current assets like cash, inventory, and receivables, as well as current liabilities. Inadequate working capital can cause business failure, while excessive working capital leads to idle funds. The objectives of working capital management are to determine optimal investment levels in current assets, maintain sufficient liquidity to meet obligations, and locate appropriate short-term financing sources. Efficient working capital management is vital for business solvency and continuous operations.
Management of Working Capital- Britannia Industries Ltd.Nikita Jangid
The document discusses working capital and its management. It defines working capital as the capital required for financing day-to-day business operations. Shortage of working capital can cause business failures while sufficient working capital is important for business success and liquidity. The document also discusses different types of working capital like permanent working capital and temporary working capital. It outlines the goals of working capital management as ensuring sufficient cash flow and balancing current assets and liabilities. Key factors that determine working capital requirements include the nature of industry, sales volume, inventory and receivables turnover, and the production cycle.
Topic 1 nature elements of working capitalRAJKAMAL282
Working capital refers to a firm's short-term assets and liabilities. It includes current assets like cash, inventory, and accounts receivable, as well as current liabilities like accounts payable. Effective working capital management balances liquidity and profitability by ensuring the business has enough cash flow to meet daily operations while maximizing returns. It is crucial for business success as mismanaging working capital can lead to insolvency or inability to take advantage of business opportunities.
This document provides an introduction and overview of working capital. It defines working capital as the difference between current assets and current liabilities, and represents the funds available for day-to-day operations. The document discusses the need for working capital, components of working capital like cash, receivables and inventory, and factors that influence working capital requirements like the nature of the business, credit terms, seasonality and growth. It also outlines sources of working capital including equity, debt, bank loans and trade credit, and emphasizes the importance of effective working capital management.
This document discusses working capital management. It defines working capital as short-term financing used for daily business operations. It notes that working capital involves managing current assets like cash, accounts receivable, and inventory, as well as current liabilities like accounts payable. The document outlines different types of working capital, factors that influence working capital needs, sources of working capital, and the operating cycle from procuring materials to collecting from debtors. The overall goal of working capital management is to optimize current assets and meet daily expenses while minimizing costs.
Working capital refers to funds used in a business's day-to-day operations. It is the difference between current assets and current liabilities, and includes inventory, cash, and accounts receivable that can be converted into cash within one year. Maintaining adequate working capital is important for liquidity and profitability. Too much working capital ties up funds unnecessarily, while too little prevents a business from operating efficiently and taking advantage of opportunities. Proper management of working capital levels is crucial for smooth business functioning.
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.
This document discusses different types of working capital. It defines working capital as the capital required to finance short-term assets like cash, inventory, and accounts receivable. There are two main types of working capital: gross working capital, which refers to the total investment in current assets, and net working capital, which is current assets minus current liabilities. Net working capital indicates a firm's ability to meet short-term obligations, while gross working capital simply measures total current assets. Working capital can also be classified as permanent/fixed or temporary/variable depending on whether it is needed continuously or fluctuates over time. Temporary working capital includes seasonal working capital needed for periodic demand fluctuations and specific working capital for unexpected needs.
This document discusses different types of working capital. It defines working capital as the capital required to finance short-term assets like cash, inventory, and accounts receivable. There are two main types of working capital: gross working capital, which refers to the total investment in current assets, and net working capital, which is current assets minus current liabilities. Net working capital indicates a firm's ability to meet short-term obligations, while gross working capital simply measures the amount invested in current assets. Working capital can also be classified as permanent/fixed or temporary/variable depending on whether it is needed continuously or fluctuates over time. Temporary working capital includes seasonal working capital needed for periodic demand fluctuations and specific working capital for unexpected needs.
Working capital refers to the funds used for day-to-day business operations, including purchasing raw materials and paying wages. It is the excess of current assets like inventory, cash, and receivables over current liabilities like debt and payables. There are two types: gross working capital includes all current assets, while net working capital is the difference between current assets and liabilities. Maintaining sufficient working capital is important for businesses to operate smoothly and meet short-term obligations.
This document provides an overview of working capital presented by students at an educational institution. It defines working capital as the difference between current assets and current liabilities, and that it is required to keep business operations running smoothly. The objectives of working capital management are outlined as maintaining a balance between current assets and liabilities, optimizing investment in current assets, and ensuring returns on current asset investments exceed capital costs. Current assets and liabilities are defined and key factors that influence working capital requirements are discussed such as the nature of business, scale of operations, and business cycles.
PPT-WORKING CAPITAL MGT-MBA-E-III, Aug-30.pptxmusharrafk0272
This document discusses working capital management. It defines working capital as the capital required for day-to-day business operations. Working capital includes current assets like inventory, accounts receivable, and cash. The objectives of working capital management are to maintain adequate liquidity and meet short-term obligations. Factors that affect working capital requirements include the nature of the business, size of operations, production and credit policies, and seasonal variations. The document also discusses different types of working capital like gross, net, permanent, and temporary working capital. It outlines how to calculate working capital using the operating cycle method.
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1. WORKING CAPITAL MANAGEMENT
INTRODUCTION:
Capital required for a business can be divided into two categories i.e. Fixed capital and
working capital. Fixed capital is the part of total capital which is used for purchasing permanent
a fixed asset like land, Buildings, Plant and machinery, furniture and fixtures, vehicles, etc. This
capital is invested by organization in the beginning of running the business. In addition to fixed
capital an organization requires additional capital for financing day to day activities like
purchase of Raw materials, payment of direct and indirect expenses, carrying out production,
investment in stocks and stores, receivables and assets to be maintained in the form of cash is
generally known as working capital (fluctuating capital). In other words, this capital refers to the
investment in current assets such as cash inventory, receivables, etc. All such assets are likely to
be convertible into cash within one a year.
MEANING OF WORKING CAPITAL:
The capital used for performing day to day activities i.e. purchases of Raw material,
making payment of direct and indirect expenses, carrying out of production of goods and
services, investment in stocks, stores, etc is called as working capital. All assets consisting of
working capital revolve around cash. Firstly, cash is used to purchase of raw materials, which
when certain expenses are in carried on it gets itself converted into semi finished goods and
finally into inventory of finished products. Inventory (finished goods), after adding certain profit
margin to it, is sold to the customers, which may take the form of cash or receivables or debtors.
Receivables or debtors when realized again take the form of cash and the cycle goes on. The
revolving nature of current assets consisting of working capital has been cleared with the help of
following chart:
Receivables
Sales
Cash
Finished goods
Raw materials
Work in progress
2. Because of this revolving nature of the assets consisting working capital, later is also
known as 'fluctuating' or 'floating' or ' circulating' capital.
DEFINITIONS OF WORKING CAPITAL:
J.M. Mill: - "The sum of the current assets is the working capital of the business"
Shubin: - "Working capital is the amount of funds necessary to cover cost of operating the
enterprise."
Hoaglandi: - "Working capital is descriptive of that capital which is not fixed. But the more
common use of the working capital is to consider it as the difference between the block value of
the current assets and current liabilities."
Gerestenberg: - "Circulating capital wears current assets of a company that are changed in the
ordinary course of business from one to another, as for example, from cash to inventories,
inventories to receivables, and receivables to cash."
The accounting principles of board of American institute of Certified Public Accountants
has defined the working capital as under: "Working capital is represented by the excess of
current assets or current liabilities and identifies the relatively liquid portion of the total
enterprise capital which constitutes a margin or buffer for maturing obligations within the
ordinary operating cycle of the business."
Backer and Malett- “ Working capital means sum of current assets only”
Thus working capital means investment made by a business organization in short-term
current assets like cash, debtors, etc. one also conclude that working capital is that part of capital
which need for financing the current need of the business.
3. TYPES OF WORKING CAPITAL:
Gross working capital: Gross working capital means the total current assets without deducting
current liabilities. This equal to the cash balance and the amount blocked in debtors stocks, etc.
Networking capital: Net working capital means total current assets minus total current
liabilities. It means net current assets. This capital indicates the amount available to meet short
term liabilities or debt of the business organizations.
Permanent of fixed working capital: This capital represents the value of the current assets
required on continuing basis over the entire year and for several years. Permanent working
capital is the minimum amount of current assets which is needed to conduct business even during
the dullest season of the year. Thus, the minimum level of current assets is called permanent or
fixed working capital is the part of capital permanently blocked in current assets. This amount
changes from year to year depending on growth of the company and the stage of the business
cycle in which it operates. It is used to produce goods necessary to satisfy the customer's
demand.
It has the following characteristics
a) It is classified on the basis of time.
b) It constantly changes from one asset to another and continuously remains in the
business.
c) Size of this capital increases with the growth of business operations.
Temporary or variable working capital This component represents a certain amount of
fluctuations in current assets during a short period. These fluctuations are increases or decreases
in current assets. Generally these are in cyclical nature. This is called as additional capital
required at different times during the operating year. This capital is used to meet seasonal needs
of a firm or organization is called seasonal or variable working capital. Additional funds or
capital specifically used to meet extraordinary needs or contingencies arising due to strikes, fire,
unexpected competition, rising price tendencies launching of advertisement campaigns.
4. Features:
a) It is not always gainfully employed, though it may change from one asset to another, as
permanent working capital does.
b) It is particularly suited to business of a seasonal or cyclical nature.
c) It is arranged from temporary source i.e. short term loan, deposits, bank over drafts etc.
5. Balance sheet working capital: Usually this capital is determined on the basis of current assets
and current liabilities shown in closing balance sheet of the concern. It means the net current
assets as on last date of the balance sheet.
Cash working capital: This capital is the net current assets if realized at its book value. The
cash realized from current appearing is really less than the book value because i) Debtors
includes profit margin ii) Depreciation included in over valuation of stock of finished goods. The
concept of this capital makes proper adjustment in balance sheet working capital for the items to
arrival at cash working capital. The cash working capital indicated the working capital at cost
because stocks and debtors are at cost.
Positive working capital: When a net current asset is in positive figure. Therefore it is called
positive working capital. This working capital shows favorable liquidity solvency position of the
company.
Negative working capital: In this case, difference between current assets and current liabilities
is negative figure. Therefore, it is called are negative working capital. It means current liabilities
are more than the current assets. This capital indicates lack of liquidity and adverse solvency
position of the company.
IMPORTANCE OR ADVANTAGES OF ADEQUATE WORKING CAPITAL:
Working capital is like the heart of business. If it becomes weak, the business hardly can
proper or survive. But no business can run successfully without an adequate amount of working
capital. Following are the few advantages give importance of adequate working capital in the
business.
1. Cash discount: Adequate amount of working capital enables the firm to avail cash discount
facilities offered by suppliers. The amount of cash discount reduces cost of purchases.
2. Creation of goodwill: Adequate amount of working capital enables the firm to make prompt
payment of short-term liabilities is the base to create and maintain goodwill.
6. 3. Ability to face crisis: Amount of adequate working capital facilitates to meet situations of
crisis and emergencies. It makes able to withstand periods of depression smoothly.
4. Credit-worthiness: It enables the firm to run its business more efficiently because there is no
delay in getting loan from bank and other financial institutions on easy and favorable terms and
conditions.
5. Regular supply of Raw materials: Adequate amount of working capital permits the carrying
of inventories of a level that would enable a business to serve satisfactorily the need of its
customers. Thus it ensures regular supply of raw materials for continuing productions in future.
6. Expansion of market: A firm having adequate working capital can create favorable market
condition. It is possible to purchases required material at lower rate and holds its inventories for
higher rate. Thus it helps to maximize profits.
7. Increase in productivity: Fixed assets of the firm cannot work without sufficient amount of
working capital. Because large scale investment in various fixed assets is largely depending on
the manner in which its current assets are managed.
8. Research programmes: It is not possible to undertake research programmes, innovations and
technical developments without having sufficient amount of working capital in the organizations.
9. High morale: Maintaining of sufficient amount of working capital makes us possible to
create environment of security, confidence, high morale among the staff and it helps in creating
overall efficiency of the business.
10. Liquidity and solvency: A sound position of working capital enables a firm to make
payment of dividends to its investors regularly. This helps in gaining confidence in the mind of
investors and also helps in creating favorable market environment to raise additional funds in the
near future.
7. 11. Contented labour force: A firm having enough amount of working capital will be in a
position to pay its workers well and in advance. This way contented labour force contributes to
increased production of quality goods
DANGER OF INADEQUATE WORKING CAPITAL:
When a firm had inadequate amount of working capital, it faces the following problems.
a) It may not be able to take advantages of cash discount.
b) It cannot buy its requirements in bulk and unable to utilize production facilities fully.
c) It may not be able to take advantages of profitable business opportunities.
d) It may not be able to pay its dividends because of non availability of funds.
e) It shows low liquidity leads low profitability. Low profitability results in low liquidity.
f) It is not possible to pay short terms liabilities due to inadequate working capital. This leads to
borrow loan or funds at high rate of interest.
g) Credit worthiness of a firm may be damaged due to lack of liquidity. It will lose its reputation.
Thus firm may not be able to get credit liabilities.
h) Low liquidity position may lead to liquidate the firm because it cannot be able to meet its
debts at the date of maturity.
DANGER OF EXCESS WORKING CAPITAL:
When a firm has excess working capital arise the following problems.
a) A firm may be tempted to over trade and lose heavily.
b) A firm may purchase more inventories unnecessarily which leads the problem of theft, waste,
losses, etc.
c) It created imbalance between liquidity and profitability.
d) Excess working capital means idle funds means not earning of profits. In this case rate of
return on investments falls.
E) It may make greater production which may not have matching demand. Fund will be blocked
only. No possibility of profits.
F) It may lead carelessness about cost of production. It means there will be high cost of
production and it leads to less profit.
8. FACTORS DETERMINING WORKING CAPITAL REQUIREMENT:
a) Nature of business: - Working capital requirements of an enterprise are basically related to
conduct of the business. Public utility undertakings like electricity, water supply, Railways, etc
need very limited working capital because they offer cash sales only and supply services, not
products, and as such no funds are tied up in inventories and receivables. But at the same time,
trading firm need large amount of working capital in current assets like inventories, cash,
receivables etc but they have less investment in fixed assets.
b) Terms of purchases and sales: - Credit terms granted by the concerns to its customers as
well as credit terms granted by its supplier also affect the working capital. It credit terms of
purchases are more favorable and those sales less liberal, less cash will be invested in the
inventory. Working capital requirement can be reduced it terms of credit are more. The ratio of
credit and cost purchases or sales affect the level of working capital. If firms purchases on credit
and sales cash then requires less working capital and if firm purchases on cash and sales on
credit, then it requires large working capital. This means funds are tied up in debtors and bills
receivables.
c) Manufacturing cycle: - The quantum of work capital needed is influenced by the length of
manufacturing cycle. The manufacturing process always involves time lag between the time
when raw materials are fed into the production line and finished products are finally turned out
by it. The length of period of manufacture in turn needs on the nature of product as well as
production technology used by a concern.
d) Size of business unit: - Amount of working capital requirement is depending on the scale of
operation of the business organization. Large business organization performs large business
activities which require huge working capital than small scale organization.
e) Turnover of inventories: - A business organization having low turnover of inventory would
need more working capital where as high turnover of inventory need small or limited working
capital.
9. f) Turnover of circulating capital: - The speed with which circulating capital completes its
cycle if conversion of cash into inventory of raw material, raw material into finished goods,
finished goods into debts and debts into cash, which decides need of working capital in the
organization. Slow movement of working capital cycle necessitates large provision of working
capital.
g) Seasonal variations production: - In case of seasonal production in the industries like sugar,
oil, mills, etc need more working capital during peak seasons as well as slack seasons.
h) Degree of mechanization: - In highly mechanized concerns having low degree of
independence, on labour, requirement of working capital reduced. Conversely, in labour
intensive industries greater sum of working shall be required to pay wages and related facilities.
i) Growth and expansion: - Every firm wants to grow over a period of time and with the
increase in its size, the working capital requirements are bound to increase. The growing
company would need, therefore, larger amount of working capital.
j) Policy regarding dividend: - Dividend policy of a firm will also influence the working capital
position. The company which declares large amount of dividends in the form of cash requires
large working capital to pay off such dividends. But sometimes, companies issues bonus shares
by way of dividend in such cases working capital requirements will be comparatively less. This
is depending on Psychology of shareholders i.e. whether they prefer cash income or capital
appreciation.
k) Inflation: - A business concern requires more working capital during the inflation period.
This factor may be compensated to some extent by rise in selling price of inventory.
l) Changes in technology: - Changes in production technology have an impact on the need of
more working capital.
m) Depreciation policy: - Charges of depreciation on assets do not involve any cash outflows.
Depreciation affects tax liability and retention profits. It is allowable expenditure while
10. calculating net profits. Higher depreciation will mean lower disposal of profit and therefore
dividend will be paid in smaller amount. Thus cash will be preserved.
PROJECTION OF WORKING CAPITAL REQUIREMENTS:
The businessman mainly faces the problem of determination of working capital requirements for
financing particular level of activity. The finance manager has to perform the activities of
forecasting working capital requirements. This process involves the following aspects.
1) Level of activity: - Estimation of working capital begins with the level of activity. Therefore
the finance manager has to ascertain the required quantum of production in advance on the basis
of past experience, installed and utilized capacity of the factory and demand.
2) Raw materials: - The finance manager has to estimate the quantity and cost of raw materials.
Lengths of time of raw materials remain in the store before issue for production is considered
longer period of stay of raw material need greater working capital. This must be valued at cost.
3) Labour and overheads: - Expenses incurred on wages and overheads are considered while
ascertaining raw materials.
4) Work-in-progress: - While ascertaining work-in-progress the ‗period of processing' or
'period of production cycle' has to be considered. Longer the production cycle, greater the
working capital requirement. Therefore, the finance manager has to consider the amount required
for raw materials, wages and overheads while estimating volume of production.
5) Finished Goods: - The period of storing finished goods before sale has to be taken into
consideration. This is depending on season, sales forecasting, etc. If the sales are seasonable and
production is throughout the year, then working capital requirement would be the higher during
the slack seasons.
11. 6) Sundry Debtors: - While calculating amount of sundry debtors, period credit allowed to
customers is to be taken into consideration. This period is known as "time lag in payment by
debtors". If this period is longer, required working capital will be higher in the absence of similar
time lag in payment to creditors. The sundry debtors are value at sales price while calculating
working capital.
7) Cash and bank balance: - As per past experience every businessman is suppose to know the
amount cash float or bank balance necessary to pay day is day payments. This amount is given in
the information and added in the amount of working capital required.
8) Prepaid Expenses: - There may be some expenses i.e. insurance, sales promotion would be
paid in advance and in this case working capital requirement would be higher is that extent.
9) Sundry Creditors: - The period of credit allowed by supplier has to be taken in to
consideration while estimating required amount of working capital. It longer the period credit
from suppliers, lower will be the working capital requirements.
10) Creditors for expenses: - Time lag in payment of wages and overheads also should be
considered while deciding amount of working capital requirements. If there is no time lag in
payment of wages and overheads, more working capital will be required and there will be less
requirement of working capital when there is time-lag in payment of wages and overheads.
11) Advance from customers: - If and when advance required from customers then there will
be lower working capital requirements.
12) Contingencies: - After calculating the amount of working capital as discussed above, a
provision for contingencies may be made to make allowances for likely variations. This is the
sort of cushion against uncertainties involved in estimating working capital.
12. ReferencesM .Y. Khan and P. K. Jain (2010), “Financial Management” (5th Edition) pp.13.3 to
13.45
Prasanna Chandra (2008), “Financial Management” ( 7th Edition) pp. 653 to 663
I M Pandey (2008), Financial Management (9th Edition ) pp., 577 to 590