WORKING CAPITAL MANAGEMENT

PRESENTED BY:Priyanka Garale-15 Ankita Patil- 07 Salma Qureshi- 23 Mitali Goregoankar- 22 Sachin Nagargoje-42

What is a capital
Cash or goods used to generate income either by investing in a business or different income property.

Two types of capital

1. Fixed capital:
Fixed assets are to be used in business for longer period and capital invested in such acquisitions are called as fixed capital.

2. Working capital:
Capital essential for short term purposes & capital invested for such purposes are called as working capital.

What is working capital.???

Working capital typically means the firms holding of current or short-term assets such as cash, inventory and marketable securities. The capital of a business that is used in day to day operations.

 Funds invested in current assets keep revolving fast and are constantly converted into cash. This cash flow out again in exchange for other current assets. Working Capital is also known as revolving or circulating capital or short-term capital.

How working capital is calculated???

Working capital= current assets current liabilities

STATEMENT OF WORKIG CAPITAL

Particulars CURRENT ASSESTS i) Stock of raw materials ii) Work in progress iii) Stock of finished goods iv) Sundry debtors v) Payments in advance vi) Balance of cash of daily expenses vii) Any other item LESS: CURRENT LIABILITIES i) Creditors XX XX XX XX XX XX XX XX Amount (Rs.)

ii) Lag in payment of expenses

iii) Any other item WORKING CAPITAL ( C.A CL) Add : provision / margin for contingencies NET WORKING CAPITAL REQUIRED

XX
XX XXX XX XXX

Effects of Excess working capital

Every business concern should have adequate working capital

to run its business operations.

It should have neither excess working capital nor inadequate of working capital. Both excess as well as shortage of working capital situations are bad for any business.

However, out of the two, shortage of working capital is more

dangerous from the point of view of the firm.

Importance of working capital

It enables the company to meet its obligations. Ensures the solvency of the company. Enables the organization to tide over difficult periods successfully Enhances the good will of the company.

Effects of inadequate working capital

Fixed Assets cannot efficiently and effectively be utilized on account of lack of sufficient working capital. Low liquidity position may lead to liquidation of firm. Credit worthiness of the firm may be damaged. It may not be able to take advantages of cash discount.

Factors determining working capital requirement

Nature of business

Production policies
Size of the business unit Terms of purchases & sales Turnover of inventories Turnover of circulating capital Business cycle

Working capital cycle

Cash flows in a cycle into, around and out of a business

 There are two elements in the business cycle that absorb cash - Inventory (stocks and work-inprogress) and Receivables (debtors owing you money).
The main sources of cash are Payables (your creditors) and Equity and Loans. Each component of working capital (namely inventory, receivables and payables) has two dimensions ........TIME ......... and MONEY

Working capital management

Working capital management is concerned with the problems that arise while managing current assets, current liabilities, and inter-relationship that exists between them. 1. Current assets: In ordinary course of business, can be

converted into cash within one year without undergoing any

diminution in value. E.g., cash, marketable securities, accounts receivable, and inventory 2. Fixed assets: Permanent in nature and are held for use in business activities. E.g., land, building, machinery etc.

3. Current liabilities: Obligations that have to be paid in a single accounting period. E.g., accounts payable, bills receivable,

bank over-draft and outstanding expenses

4. Long-term liabilities: Obligations that can be repaid over a period greater than a single accounting period. E.g., share capital, debentures, long-term loans etc.

 Every firm requires funds for two purposes: 1. Long term funds are required to create production facilities through purchase of fixed assets

1. Short term funds are required for the purchase of raw materials, payment of wages, and other dayto-day expenses.

Sources of additional working capital

Existing cash reserves Profits (when you secure it as cash!) Payables (credit from suppliers) New equity or loans from shareholders Bank overdrafts Long-term loans

Objectives of working capital management

To ensure the maintenance of satisfactory level of working capital.

To minimize the amount of capital employed in financing the current assets. To maintain the balance between the amount of current assets & current liabilities.

Need of working capital in different industries

Real estate and engineering sectors involve projects which take a long time to complete, resulting in long inventory holding periods. The gems & jewelers industry imports rough diamonds, and exports the polished diamonds which translate into longer inventory and receivable days.

The sugar and textile sectors longer working capital cycles are due to their dependence on commodity-based inputs which are seasonal in nature and necessitate their storage.

Working capital management in reliance : Hisar project

Hisar is the project of reliance infrastructure limited, India

 There are three main areas in working capital management of RIL & they are : 1.Receivables management: RIL manages its receivable accounts through ageing analysis 2.Cash management: RIL manages its cash through management information system.

3.Inventory management: Inventory management is made easier through the process of high sea sales and sale in transit.

Thank You