By Group 3

1. Definition Definition of working capital by Hoagland 2. Meaning Day to day operations Financial metric

Part of operating capital

 Involves managing four important components It aims at two things Optimum level of investment

Continuation of operations

 Gross working capital. Net working capital. Positive working capital. Negative working capital. Zero working capital. Permanent working capital. Variable working capital. Balance Sheet working capital. Cash working capital

RECEIVABLES

FINISHED GOODS

CASH

OPERATING CYCLE

WORK-INPROGRESS

RAW MATERIALS

1. Nature of Business
2. Size of business 3. Time Consumed for Manufacture

4. Need to Stock Pile Raw Materials

5. Need to Store Finished Goods

6.Cost and Time Involved in Manufacturing process

7. Turnover of Circulating Capital

8. Terms and Conditions of Purchase and Sale 9. Impact of Cyclic and Seasonal Variation 10.Production Policies

Three methods for determining MPBF

Method 1: MPBF=0.75(CA-CL) Method 2: MPBF=0.75(CA)-CL Method 3: MPBF=0.75(CA-CCA)-CL

CA- current asset, CL- current liabilities, CCA- core current assets (permanent component of working capital).

1. Customer Evaluation 5Cs of Credit

CHARECTER 5 Cs CAPACITY CAPITAL COLLATERAL CONDITIONS

FINANCIAL STATEMENTS

BANK REFRENCES TRADE REFRENCES

CREDIT BEAUREU

FIELD VISIT

 Meaning:Receivable relates to sales being made on credit basis for which payment has not yet been received .

Different types of cost associated with it are: Collection Cost. Capital Cost. Delinquency Cost. Default Cost.

 Creating, presenting and collecting accounts receivable. In order to establish & communicate the credit policies. For evaluation of customers and setting credit limits. In order to ensure prompt and accurate billing. To maintain up-to-date record of accounts receivables. To initiate collection procedures on overdue accounts.

1. Days Sales Outstanding

DSO = Accounts Recv. / Average Daily Sales

2. Ageing Schedule 3. ABC Analysis Of Receivables

A = less debtors. Large amount B = Moderate Value C = more Debtors. Small amount

CREDIT GRANTING DECISION

Proposal Appraisal. In-depth study. Independent sources.

 Credit reports are the brief of all transactions of the company . These reports can be prepared on basis of Discussions Reports Valuation Credit reports should be revised periodically .

 The creditors evaluate the customer depending on the risk involved in financing to them . Therefore, each customer is graded or credit rating is assigned to them and interest is charged on the principle of lower the risk, lower the interest , higher the risk, higher the rate of interest .

Credit risk codes :AAA+ AAA AA A B C D

Prime Excellence Good Satisfactory Risk prone High risk Highest risk

 A del credre agent sells goods to the customers on the credit on his behalf and thus assumes the credit risk of bad debts from the customers . Along with normal sales commission he is entitled for additional commission termed as del credre commission . Thus a del credre agent is a sales-cum-recovery agent .

 It is the cost of an opportunity foregone as a result of the rejection of the alternatives . Money has an opportunity cost of capital. Opportunity costs relate to sacrificed alternatives .