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Caiibfmwctlmoduled contd2 2


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Caiibfmwctlmoduled contd2 2

  1. 1. BHARATI VIDYAPEETH DEEMED UNIVERSITY, PUNE. (Y.M.COLLEGE) Presentation On Working capital “ Managment Accounting I” BY NOOSHIN GHODSI MAAB R.N. (4372) M.COM SEMESTER III
  2. 2. Index: • Definition of Working Capital • TYPES OF WORKING CAPITAL • FACTORS DETERMINING WORKING CAPITAL • Working Capital Management • Inventory Management • Cash Management
  3. 3. Definition of Working CapitalDefinition of Working Capital Working Capital refers to that part of theWorking Capital refers to that part of the firm’s capital, which is required forfirm’s capital, which is required for financing short-term or current assetsfinancing short-term or current assets such a cash marketable securities, debtorssuch a cash marketable securities, debtors and inventories.. Working Capital is alsoand inventories.. Working Capital is also known asknown as revolving or circulating capital orrevolving or circulating capital or short-term capitalshort-term capital..
  4. 4. TYPES OF WORKING CAPITAL WORKING CAPITAL BASIS OF CONCEPT BASIS OF TIME Gross Working Capital Net Working Capital Permanen t / Fixed WC Temporary / Variable WC
  5. 5. Concepts of Working Capital • Gross Working Capital: It refers to the total of all current assets. • Net Working Capital: It refers to the difference between current assets and current liabilities
  6. 6. Current Liabilities: • Sundry Creditors • Borrowings (Short term) • Commercial Banks • Others Provisions
  7. 7. Current Assets: • Inventories • Raw materials and Components • Work-in-process • Finished Goods • Trade Debtors • Loans and Advances • Cash and Bank Balances
  8. 8. Permanent working capital: • Minimum amount of investment in all current assets which is required at all times to carry out minimum level of business activities. • Amount of permanent working capital remains in the business in one form or other. • There is a positive correlation between the amount of permanent working capital and the size of the business. • Permanent working capital is permanently needed therefore it should be financed through long- term funds
  9. 9. Temporary working capital: • The amount of temporary working capital fluctuates depending upon the changes in the production and sales. • Temporary working capital = fluctuating working capital = variable working capital • Temporary working capital supports seasonal peaks in business
  10. 10. FACTORS DETERMINING WORKINGFACTORS DETERMINING WORKING CAPITALCAPITAL 1.     Nature of the Business1.     Nature of the Business 2.     Size Of Business    Volume of Sales2.     Size Of Business    Volume of Sales 3.     Terms of Purchase and Sales3.     Terms of Purchase and Sales 4.     Inventory Turnover4.     Inventory Turnover 5.     Seasonal variations5.     Seasonal variations 6. Cash requirements6. Cash requirements 7.7. Potential Growth Or Expansion Of BusinessPotential Growth Or Expansion Of Business contdcontd……
  11. 11. Working Capital Determinants (Contd…)Working Capital Determinants (Contd…) 8.    Management Ability  8.    Management Ability   9.    Volume of Business9.    Volume of Business 10.   Dividend Policy  10.   Dividend Policy   11.     Risk Factors11.     Risk Factors 12.     Terms of Credit12.     Terms of Credit 13.     Size of Labour13.     Size of Labour 14.     Terms of purchase and sale14.     Terms of purchase and sale
  12. 12. Working Capital Management • Working capital management involves the relationship between a firm's short-term assets and its short-term liabilities. The goal of working capital management is to ensure that a firm is able to continue its operations and that it has sufficient ability 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.
  13. 13. Inventory Management: • Inventory management— establishes a balance between carrying enough inventory to meet sales or production requirements while minimizing inventory costs.
  14. 14. Cash Management: • Cash management—determining: – Optimal size of firm’s liquid asset balance – Appropriate types and amounts of short-term investments – Most efficient methods of controlling collection and disbursement of cash
  15. 15. Reference: • Principal of management accounting by S.N.Maheshwari •