UNIT-4

WORKING CAPITAL
 Concept of working capital
working capital or circulating capital
indicates circular flow of funds is the
day-to-day or routine activates of
business.
In broad sense, the term" working
capital ” is used to denotes the total
current assets.
 Types of working capital
1.On the basis of concept
(a) gross working capital
(b) Net working capital
2.On the basis of Requirement
(a) permanent
(b) Variable exp- seasonal
 OPERATING CYCLE
Accounting
receivable

cash finished
Goods

RAW WIP
material
 IMPORATNCE OF W. C
1. Cash discount
2. Liquidity and solvency
3. Expansion facilitated
4. Profitability increased
 SOURCES OF W. C
LONG TERM-
1. sale of share
2. issue of debenture
3. retained profit
4. long term loan
 SHORT TERM SOURCES
Internal – depreciation fund, provision
for taxation, accrued expenses

External- trade credit, customer

advances ,loan from directors
 Example-
Compute working capital –
Expected level of production 22000 t
raw material inventory 4 weeks
processing period 2 weeks
permanent material in process 200 t
finished goods 6 weeks
credit allowed to customers 8 weeks
expected ratio of material to sale 72%
wages and overheads 22%
selling price per ton Rs 3000