1. Calculate current assets which include stocks, receivables, and advances. This totals to Rs. 9,80,000. 2. Calculate current liabilities which include estimated expenses to be paid. This totals to Rs. 3,30,000. 3. Subtract current liabilities from current assets to get working capital of Rs. 6,50,000. 4. Add a 20% margin for contingencies of Rs. 1,30,000. 5. Therefore, the total net working capital required is Rs. 7,80,000.

1. Working Capital
Management

2. Capital required for the business can be
classified into two groups:
• Fixed capital:
Fixed capital means that capital which is used in the business for long term
investment.
• Working capital:
Working capital means that capital which is used in the business for the day to
day operations of business.(circulating capital)

3. Meaning Of Working Capital Management
• Working capital management is the effective and efficient utilization of
current assets in business to manage obligation and boost the earning of
business.

4. Concept Of Working Capital
• Gross working capital.
• Net working capital.
o Positive net working capital
o Negative net working capital

5. Types of Working Capital
Working capital
Permanent or
fixed working
capital
Regular
working capital
Reserve
working capital
Temporary or
variable
working capital
Seasonal
working capital
Special Working
Capital

6. Significance of working capital
• Regular amount of cash
• Smooth operations
• Regular supply of raw materials
• Easy loans
• Cash discounts

7. Operating cycle
The duration of time required to complete the various stages of business
activity is called the operating cycle.
Raw
materials
Work in
progress
Finished
goods
Accounts
receivables
cash

8. Proforma- Working Capital Estimates
Statement of working capital requirements
Amount
(Rs)
Current assets
1. Cash
2. Receivables (for month’s sales)
3. Stocks (for month’s sales)
4. Advance payment if any
Less: current liabilities
I. Creditors(for month’s purchases)
II. Lag in payment of expenses
WORKING CAPITAL (CA-CL)
Add: provision/ margin for contingencies
NET WORKING CAPITAL REQUIRED
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9. Calculate the working capital requirement. You are given following estimates and are instructed
to add 20% as contingencies.
particulars Amount
1. Amount blocked up in stocks
stock of finished goods
stock of stores, materials
2. Average credit sales
Inland sales -8 weeks credit
Export sales -2 weeks credit
3. Lag in payment of wages
Wages-2 weeks
Stock of materials- 8 weeks
Rent- 6 months
Clerical staff- 4 weeks
Miscellaneous expenses-8 weeks
4. Payment in advances
Sundry expenses (paid quarterly)
12,000
20,000
6,00,000
1,60,000
5,00,000
1,00,000
20,000
10,000
1,00,000
20,000