WCM

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8
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7
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6
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5
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4
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3
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PICTURE

START

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What do you mean by WCM

FA v/s CA

Time
Flexibility in managing CA
Large r the CA, lesser the Profit.

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 Gross WC

Focus:Investment Optimization
Current Asset Financing
Net WC.

Focus:Liquidity
Judicious Mix.

Positive NWC = CA>CL

Negative NWC= CA<CL.
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Operating Cycle

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RMCP= [Raw Materials/ Purchases]*365

WIPCP= [WIP/ Cost of Sales]*365

FGCP= [Finished Goods/ Purchases]*365

ICP=RMCP+WIPCP+FGCP

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DCP= [Trade Receivables/Credit Sales]*365

GOC = ICP+DCP

CDP=[Trade Payables/Credit Purchases]*365

NOC= GOC-CDP

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Permanent & Variable WC

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P1) Compute the Net Operating Cycle for M/s DEC Ltd for the year ended
March 31 2014

Particulars
Debtors
Creditors
Revenue (credit sales)
Cost of Sales
Purchases

Amt in Crores
5250
3540
9920
8980
6410

Inventories (closing)
Raw Materials
WIP
Finished Goods

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1110
630
1020

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P2) Compute the Net Operating Cycle for M/s CBC Ltd for the year ended
March 31 2014

Particulars
Debtors
Creditors
Revenue (credit sales)
Cost of Sales
Purchases

Amt in Crores
4250
5540
9290
8890
6140

Inventories (closing)
Raw Materials
WIP
Finished Goods

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3110
1630
1220

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Current Assets to
Fixed Assets
ratio.

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Cost Trade Off

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Estimating- WC requirements

Operating Cycle concept

Ratio of sales
Ratio of fixed investments.

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Working Capital Financing Policies

Long-term
Short- term
Spontaneous.

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Matching Approach

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FACTORS DETERMINING WORKING CAPITAL

1.
2.
3.
4.
5.
6.
7.
8.
9.
10.
11.
12.

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Nature of the Industry

Demand of Industry
Cash requirements
Nature of the Business
Manufacturing time
Volume of Sales
Terms of Purchase and Sales
Inventory Turnover
Business Turnover
Business Cycle
Current Assets requirements
Production Cycle

contd
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Working Capital Determinants (Contd)

13.
14.
15.
16.
17.
18.
19.
20.
21.

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Credit control
Inflation or Price level changes
Profit planning and control
Repayment ability
Cash reserves
Operation efficiency
Change in Technology
Firms finance and dividend policy
Attitude towards Risk

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Questions

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