- The document discusses methods for assessing working capital requirements, including the current asset and current liability method, tied-up period and operating cycle method, and annual turnover method. - It provides examples of typical tied-up periods for various industries like spinning, RMG, jute, and feed mills. Standard capacity utilization rates for different industries are also listed. - Factors to consider in working capital assessment include avoiding under or over financing, investment modes, liability adjustments, capacity utilization rates, and central bank guidelines. A worked example assesses the working capital needs of an export-oriented garments factory.

1. PRESENTED BY
A.F. MD. ANWARUL AZIM
FIRST ASSISTANTVICE PRESIDENT
ISLAMI BANK BANGLADESH LIMITED
WORKING CAPITAL ASSESSMENT

2. • Working Capital is the measure of cash and liquid
assets available to fund a company's day-to-day
operations.
• The capital of a business that is used in its day-to-
day trading/production operations, calculated as the
Current Assets minus the Current Liabilities.
• FINALLY : SHORT TERM FUNDS REQUIRED
TO ACQUIRE CURRENT ASSETS TO ENABLE
THE BUSINESS/INDUSTRY TO OPERATE AT
THE EXPECTED LEVEL.
WHAT IS WORKING CAPITAL

3. SOURCES OF WORKING CAPITAL

4. Time taken between
Cash outlay &
Cash realization
through sale of finished
goods & realization of
receivables is known
as length of
Operating Cycle
Operation Cycle/Cash
Conversion Cycle

5. Current Asset & Current Liability Method
Current Asset is considered as the Gross Working Capital
Difference between Current Asset & Current Liability is considered as
the Net Working Capital.
Tied-up Period & Operation Cycle/Cash Conversion Cycle
Method
After obtaining information on CCC, Raw Materials, Other expenses,
amount required in different stages is multiplied by the required Tied-
up periods to assess the requirement of the Business.
Annual Turnover Method
If collection of authenticate data on CCC/Raw Materials and if the
Target of Production could not be determined due to nature of the
business, the Annul Turnover Method is used to ascertain the
Requirement of Working Capital. During this calculation, margin of
error may be higher.
METHODS OF WORKING CAPITAL ASSESSMENT

6. Follow the Instruction Circular No.CIW/IAD/5917 dated 12.11.14 for
different Tied-up Period and the Circulars from BB
Item
Tied-up Period (days)
Spinning
(export)
Spinning
(local)
RMG Jute
(export)
Feed
Mill
Rice
Mill
LC / BBLC 60 60 30 - 30 -
Imported Material 90 90 30 - 30 -
Local Material 30 30 60 270 15 45
Work in Process 5 5 30 5 2 3
Finished Goods 15 7 10 15 7 15
Receivables 120 15 20 15 30 20
Store & Spares 60 60 - 60 - 60
TIED-UP PERIODS & OPERATION CYCLE

7. Avg. Capacity Utilization of Different Industries
Industry Standard
Utilization %
Industry Standard
Utilization %
Spinning Mill 90 & above Flour Mill 40 – 70
Textile Weaving 70 – 80 Auto Rice Mill 40 – 70
Textile Knitting 70 - 80 Steel Mill 40 – 70
Composite Knit 70 – 80 Cement Industry 60 – 70
Dyeing & Finishing 60 – 70 Jute Mill 70 – 80
Garments Industry 70 – 80 Paper Mill 70 – 80
Cold Storage 50 – 60 own Ceramic Industry 70 – 80
Feed Mill 60 - 70 Pharmaceuticals 40 - 60
Follow the Instruction Circular No.CIW/IAD/5917 dated 12.11.14 for
Standard Capacity utilization

8. FACTORS TO BE CONSIDERED

9. FACTORS TO BE CONSIDERED

10. • Working Capital is like the Blood in our body.
• Over Financing/Excess Financing and Under Financing/Less than
the actual requirement both are hazardous
• Thing about the Modes of Investment [Funded/Non-Funded]
• Try to adjust the liabilities on 180 days basis
• For Special WC Limit, consider +1% Rate of Return
• Follow the Instruction Circular No.CIW/IAD/5917 dated 12.11.14 for
Standard Capacity utilization, Tied-up Period and Criteria for
allowing enhancement of WC Limit and for any kind of Special WC
Limit.
• Follow the Instruction Circular No.CIW/IAD/1401 dated 13.05.15 for
determining the Cash security/Cash Margin.
• No Machines can be imported under WC Limit except some spare
parts [if allowed in the sanction advice]
OTHER
MATTERS

11. Best way to assess the requirement of a project is to visit
the project. The project is situated at Gazipur. Lets visit
the project.
It’s a Garments project which produces readymade knit
garments i.e., it has sewing machines.
The company takes export orders. Opens BBLC to import
Yarn and accessories. Then the yarn is given to other
companies for knitting, dying and finishing purpose. Then
the fabric comes to the factory for sewing, checking and
packaging.
Total activity requires 120 days [CCC].
WORKING CAPITAL ANALYSIS
[EXPORT ORIENTED RMG]

12. WHAT WE OBSERVE [SEEING IS BELIEVING]

13. WORKING CAPITAL ANALYSIS
[EXPORT ORIENTED RMG]
Item Tied-up
(day)
Capacity Utilization (%)
100 80 70
Raw Material (LC) 30 56.2 45.0 39.3
Raw Material (Inventory) 30 56.2 45.0 39.3
Accessories (Inventory) 60 42.1 33.7 29.5
Working in Process 30 125.7 100.6 88.0
Finished Goods 10 41.9 33.5 29.3
Receivables 20 83.8 67.0 58.7
Total 120 405.9 324.8 284.1
Less Clients equity (10%) 40.59 32.48 28.41
Net Requirement 365.31 292.32 255.69

14. Assumptions:
– Knit Garments (30-line): 36,000 pcs/day
– Yarn Required (2.5 kg/dz): 7,500 kg
– Price of Yarn: US$ 3.2 per kg
– Yarn Cost (7500*3.2*78): Tk. 1.872 million/day
– Accessories (US$ 3/dz): Tk. 0.702 million/day
– Exchange Rate: Tk. 78/US$
– Wages & Salaries: Tk. 15 million/month
– Fuel & Gas: Tk. 2.00 million/month
– Knitting Charge (Tk. 15/kg) Tk. 0.112 million/day
– Dyeing Charge (US$ 1.6/kg) Tk. 0.936 million/day
– WIP= (56.2+21.06+15+2+(0.112+0.936)*30 Tk. 125.7 million/day
WORKING CAPITAL ANALYSIS
[EXPORT ORIENTED RMG]
The accuracy of the assessment depends on the accuracy of the
data collected. To collect the actual data, you will require to
reach into the heart of the business. Consider yourself wearing
the shoes of the key person of the business and cross-check the
data you have in hand.