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.

1. WORKING CAPITAL
MANAGEMENT
Submitted By: Nitish
Sadotra

2. WORKING CAPITAL MANAGEMENT
PRESENTED BY : VIMAL DHAR
SUBMITTED TO :MRS. SHIVANI MENGI
ROLL NO : 626
MBA 2ND
SEM
THE MANAGEMENT SCHOOL, UNIVERSITY OF JAMMU

3. Working Capital ……..?
Working capital is as important in a business as
Blood in a human body.
Each and every business concern should always
require adequate funds to meet its day-to-day
expenses and to finance Current assets such as,
Debtor, Receivables and Inventories.
So the funds tied up in the current assets are known
as working capital funds. Also known as “Circulating
Capital”, or “Revolving Capital", or “Short term
Capital”, or “Liquid Capital”.

4. WCM -PROFITABILITY VS LIQUIDITY
Management of working capital is necessary to maintain both
Liquidity and Profitability.
Liquidity is a necessity for the survival of the firm. While
comparing liquidity with profitability, liquidity gets higher priority.
No firm can survive if it has No Liquidity. A firm having no
profit may be treated as sick but not having liquidity may die over a
period of time.
In this way working capital management involves to decide the
amount and composition of current assets and how to finance these
assets.

5. “Operating Cycle” is key of Working Capital
Operating cycle is the Time Duration which is required to convert
sales, after the conversion of resources into inventories.
Operating cycle of a manufacturing company involves three phases: -
 Acquisition of Resources such as raw material, labor, power and
fuel.
 Manufacture of the Product which includes conversion of raw
material into work-in-progress into finished goods.
 Sale of the Product either for cash or on credit. Credit sales
create account receivable for collection.

6. How the Length of Operating Cycle determined?
The length of operating cycle of a manufacturing firm
is : -
(Inventory conversion period + Debtors conversion
period)
The Inventory conversion period is the total time needed
for producing and selling the products or “Raw material
to Finished goods conversion period”.
The Debtor conversion period is the time required to
collect the outstanding amount from the customers.

7. Concept of Working Capital
The word Working with reference to capital means
circulating capital, means changing of capital from one
form to another form during day-to-day activities of the
business.
The term capital means the fund invested in the business.
Therefore working capital means that part of capital
which is invested in the current assets which in turn
changes from one form to another form in the ordinary
course of business.

8. Interpretation of Working Capital
In case of interpretation of working capital there is a
different opinion among accountants, financial managers,
entrepreneurs and economists.
So to understand its, real meaning let us understand and
analyses its following concept:-
1. Quantitative concept
2. Qualitative concept

9. Quantitative Concept
It is also known as Gross Working Capital concept.
This concept of working capital emphasis on Quantity of
capital rather than Quality of capital.
W.C. = Total of C.A.

10. Qualitative Concept
This concept is also known as Net working capital concept.
According to this concept Working Capital is the Excess of
Current Assets over Current Liabilities.
If the amount of current assets and current liabilities is
equal, it means there is no working capital.
The net working may either be positive or negative.
When current assets exceed current liabilities, its working
capital is positive or vice versa.

11. Components of the Working Capital
There are mainly two components of working capital:
 Current assets
 Current liabilities

12. Current Assets
These are those assets which change their form within a short
period of time, generally within one year into liquid or cash.
Like raw material converted into finished goods, finished goods
converted into debtor, debtor converted into cash and cash again
converted into raw material. Examples of such assets are:-
 Debtor
 Inventory
 Raw material
 Work in progress
 Finished goods
 Bills receivables
 Cash and bank balances
 Short tem investment
 Prepaid expenses

13. Current Liabilities
Like current assets, current liabilities are those liabilities
which are payable within a short period of time.
Generally within one year current liabilities include the
following: -
 Creditors
 Bills payable
 Bank overdraft
 Short-term loan
 Income tax payable or provision for income tax
 Proposed dividend
 Outstanding expense

14. Importance of Working Capital
1. Working capital plays a vital in day-today operation of a
business. It is not sufficient to run the business only
arranging the fixed assets, even it is also required to utilize
the fixed assets in an efficient manner.
2. To utilize these fixed assets in a efficient manner working
capital is needed.
3. In day-to-day activated a business needs working capital for
purchasing of raw material, expenses for converting them
into finished goods like salary, wages and overhead etc. and
for arrangement of credit sales.
4. Working capital works flow of blood in a human body.
Therefore proper management of working capital is
necessary for smooth functioning of the business.

15. Level of Working Capital: -
3 Level of Working Capital Exists :-
1. Adequate / Optimum level of working capital
2. Excessive level of working capital
3. Inadequate level of working capital

16. ADEQUATE LEVEL OF WORKING CAPITAL
WHY?
o Quick payment to suppliers.
o Increase in debt / lending capacity and increase in goodwill.
o Cash discount.
o Easy availability of bank loans.
o Cash for favorable opportunities.
o Distribution of adequate dividends.
o Improvement in efficiency.
o Increase in the productivity of fixed assets.
o Meeting unseen contingencies.

17. Disadvantages of Excessive working capital
o Unnecessary accumulation of inventories.
o Speculative profit tendency.
o Liberal credit policy.
o Managerial inefficiency.
o Adverse impact on profitability.
o Dissatisfaction among the shareholders.
o Liberal dividend policy.

18. Disadvantages of Inadequate Working Capital: -
o The firm cannot undertake profitable projects due to lack of
availability of liquidity.
o The firm finds difficult to implement operating plans and
achieve the profit target.
o It becomes difficult to cope with day-today commitments.
o Fixed assets will not gainfully utilized thus the rate of
return on investment (ROI) will adversely affected.
o Firm will unable to avail attractive opportunities