Understand the Working Capital Concept

1. Working Capital
Conducted by
Mr. Sushil B. Bansode

2. Introduction
• Working capital, also known as net working capital (NWC), is the
difference between a company's current assets and its current
liabilities.
• Working capital also defined as excess of Current assets over the
current liabilities
• Working capital is part of total capital
• Working capital is amount of funds necessary to cover the cost of
operating enterprises.
• Working capital is life blood or heart of business.

3. Types of Working Capital

4. 1. Gross Working Capital (GWC)
Current assets in the balance sheet of a company are known
as gross working capital.
2. Net Working Capital (NWC)
The difference between current assets and the current
liabilities on the balance sheet of a companies is known as net
working capital
3. Permanent or Fixed or regular working capital
Permanent or fixed or regular working capital is that
minimum amount of working capital, which required to be kept
always on hand to carry out business activities.
4. Variable Working capital
The working capital that varies with the volume of
production is called variables working capital.

5. Importance of working capital
• Strengthen The Solvency
• Enhance
• Easy Obtaining Loan
• Goodwill
• Regular Supply Of Raw Material
• Smooth Business Operation
• Ability To Face Crisis

6. Factor determining requirement of
working capital
• Nature or Type of Business
• Size of the business
• Length of manufacturing
• Terms of purchase and sales
• Large stock of raw material
• Seasonal variations
• Cash requirement
• Management ability, attitude and efficiency
• Expansion

7. Source of working capital
• Permanent or fixed working capital sources
– Issue of shares
– Issue of debentures
– Ploughing back of profit
• Temporary or variable sources
– Credit from financial institution
– Retained earning
– sales of purchases
– Trade creditors
– Allowing cash discount to debtors to collect prompt cash
– Bank loan against mortgage of fixed assets

8. Equations of Working capital

9. Working Capital Ratio

10. example

11. Working Capital Loan
A working capital loan is a loan that is taken to
finance a company's everyday operations.
These loans are not used to buy long-term assets or
investments and are, instead, used to provide the
working capital that covers a company's short-term
operational needs. Those needs can include costs such
as payroll, rent and debt payments. In this way, working
capital loans are simply corporate debt borrowings that
are used by a company to finance its daily operations.

12. Eligible entities for Working Capital
loans
• The Sole proprietors/proprietorship firms
• The Partnership firms
• The Private-limited companies
• The Public-limited companies

13. Document required for
working capital loan
• The audited financial records for the past three years
• The bank statements of the past 6 months
• The net worth statements and the tax return of any
borrowers / promoters and the guarantors
(if applicable)
• The proof of identity and the address

14. Thank You...