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Working capital
This document discusses working capital management. It defines working capital as short-term funds used to meet operating expenses and keep a business running. There are two concepts of working capital: gross working capital, which is the sum of all current assets, and net working capital, which is current assets minus current liabilities. The document also covers the nature, scope, components, determinants, and financing of working capital.
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Working capital
- 1. WORKING CAPITAL MANAGEMENT Prof. MohasinA. Tamboli Mob: 9766010560 Email: mohasinat@gmail.com1Prof. M.A.Tamboli
- 2. • Capital :Amount required to start business Fixed Capital Working Capital Capital 2Prof. M.A.Tamboli
- 3. • Fixed Capital:Fixed Capital required for Establishment of business. • Working Capital: Working Capital required to utilize fixed assets. Prof. M.A.Tamboli 3
- 4. Working Capital • Workingcapital plays a key role in a business just as the role of heart in human body. • It act as ‘grease’ to run the wheels of fixed assets. • The efficiency of a business enterprise depends largely on its ability to manage working capital. Prof. M.A.Tamboli 4
- 5. Working Capital • WorkingCapital refers to short term funds, to meet operating expenses. • In simple ‘Working Capital is a fund required by firm to finance day-to-day operations. • Broadly, there are two concepts of Working Capital: – Gross Working Capital – Net Working Capital Prof. M.A.Tamboli 5
- 6. Nature of WorkingCapital A. Short term need B. Circulating C. Permanent D. Fluctuating E. Liquid F. Less Risky Prof. M.A.Tamboli 6
- 7. Scope of WorkingCapital A. Cover all expenditure B. Keep business going C. Generate operating profit Prof. M.A.Tamboli 7
- 8. Concept of WorkingCapital I. Gross Working Capital: It is the sum of all current assets appear in balance sheet. Current Assets are those assets which can be easily converted into cash II. Net Working Capital: It is the difference between current assets and current liabilities Current liabilities are short term liabilities Prof. M.A.Tamboli 8
- 9. Types of WorkingCapital I. Permanent Working Capital: It is the minimum working capital required for producing predetermined production. II. Temporary Working Capital: It is the additional current assets required for temporary period, and it is above permanent working capital. Prof. M.A.Tamboli 9
- 10. Types of WorkingCapital Prof. M.A.Tamboli 10 Temporary WC Permanent WC Time Working Capital (Rs)
- 11. Components of Working Capital CurrentAssets • Raw Material • Work-In-Progress (WIP) • Finished Goods • Stock • Inventory • Prepaid/Advances • Cash • Sundry Debtors • Short Term Deposit (Up to 1 Year) • Bank Balance Current Liabilities • Short Term Creditors • Bank Overdraft • Short Term Borrowings • Proposed Dividend • Short Term Loans and Advances Prof. M.A.Tamboli 11
- 12. Determinants of WorkingCapital Nature of Business Size of Business Operational Efficiency Business Cycle Terms of Purchase & Sales Production Cycle Technological Changes Prof. M.A.Tamboli 12
- 13. Operating Cycle • Thetime that require to convert raw materials into cash. • The length of operating cycle is depend upon several factors like – • Length of Manufacturing Process • Holding period of inventories Prof. M.A.Tamboli 13
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- 15. Working Capital Financing Sourcesof Working Capital Working Capital Loan Bank Overdraft Cash Credit Trade Credit Funds Through Internal Prof. M.A.Tamboli 15