Working capital managment


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Presentation About WCM

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  • Working capital managment

    1. 1. Submitted By  Subhankar Das  Roll No-3720 METROPOLITAN SCHOOL OF MANAGEMENT
    2. 2. capital is the keynote of economic development. In this modern age, the level of economic development is determined by the proportion of capital available. Capital (economics), A factor of production that is not wanted for itself but for its ability to help in producing other goods.
    3. 3.  Working capital refers to the funds invested in Current assets , sundry debtors, inventories , cash and bank balance  It is the fund required to support day to day operations such as purchase of raw materials , payments of wages and defraying other expenses for operations  Working capital = Current assets – Current liabilities  It measures how much in liquid assets a company has available to build its business.
    4. 4.  Positive working capital is required to ensure that a firm is able to continue its operations and that it has sufficient funds to satisfy both maturing short-term debt and upcoming operational expenses.  The management of working capital involves managing inventories, accounts receivable and payable and cash.  An increase in working capital indicates that the business has either increased current assets (that is received cash, or other current assets) or has decreased current liabilities,
    5. 5. Nature of Business Size of business Production policy Operating efficiency Credit policy Dividend policy Growth and expansion Abnormal factor –strikes, lockout, inflation Etc
    6. 6.  Conversion of cash into raw materials.  Conversion of raw materials into work in progress.  Conversion of work in progress into finished stock.  Conversion of finished stock into accounts receivables(Debtors)through sale  Conversion of account receivables into cash.
    7. 7. KINDS OF WORKING CAPITAL WORKING CAPITAL BASIS OF CONCEPT BASIS OF TIME Gross Working Capital Net Working Capital Permanent / Fixed WC Temporary / Variable WC Regular WC Reserve WC Special WC Seasonal WC
    8. 8. Difference between permanent & temporary working capital Amount Variable Working Capital of Working Capital Permanent Working Capital Time Permanent and temporary working capital for Stable firm
    9. 9. Variable Working Capital Amount of Working Capital Permanent Working Capital Time Permanent and temporary working capital for Growing firm
    10. 10. IMPORTANCE OF WORKING CAPITAL • Goodwill • Easy loans • Cash discounts • Regular Supply of Raw Material: • Regular payment of salaries, wages and other day to day commitments • Ability to Face Crises: • Quick and regular return on investments
    11. 11. Reducing the capital employed Debtors Management (recievables) to increase cash flow Short term financing- loans utilization, cash conversion cycle Creditors management (payables) Cash management
    12. 12. ADVANTAGES Goodwill Creditability Creates environment of security, confidence Maintains solvency and liquidity Unnecessary accumulation of inventory Indicates defective credit policy Inefficiency Excessive W.C meant idle funds which may decrease return on investment DISADVANTAGES
    13. 13. Negative Working Capital McDonald's had a negative working capital of $698.5 million between 1999 and 2000 Wal-Mart