Presentation

For

Neha Eknath Dalvi

(P79)/2021017000331187

1
2
 INTRODUCTION
❑ Management of Working Capital is one of the most important functions of
corporate management.
❑ Working capital represents the funds available with the company for
day-to-day operations.
❑ Company cannot survive with negative working capital which represents
that the company has no funds for day-to-day operations.
❑ It is calculated as current assets minus current liabilities.
❑ If current assets are less than current liabilities, an entity has a working
capital deficiency, also called a working capital deficit.
❑ Working capital represents the funds available with the company for
day-to-day operations.
❑ Working Capital is the life blood of every business concern
❑ Working capital financing is a specialized area and is designed to meet the
working requirements of a business.

3
 DEFINATION
❑ Working capital is the amount of current assets you have minus current
liabilities at a certain snapshot in time.

❑ Capital is another word for money and working capital is the money
available to fund a company’s day-to-day operations

❑ Working Capital is money which is available for use immediately rather

than money which is invested in land or equipment.

❑ The Project has been put on hold for lack of working Capital

❑ It’s like the balance sheet report in that is measures something at a given
moment in time instead of a change over period of time.

❑ Working capital is a snapshot of the differences between assets and

liabilities, but it’s important to say that it’s not just all assets minus all
liabilities, just current assets minus current liabilities.

4
CONCEPT OF WORKING CAPITAL

5
WHAT IS THE WORKING CAPITAL FORMULA?

6
SOURCES OF WORKING CAPITAL

Trade Credit

Factoring

Commercial Paper

Commercial Banks

Accrued Expenses

Deferred Income

7
STRUCTURE OF WORKING CAPITAL MANAGEMENT

8
 STRUCTURE OF WORKING CAPITAL MANAGEMENT

CURRENT LAIBILITIES CURRENT ASSETS

□ - Bank overdraft - Cash/Bank Balance

□ - Creditors - Inventories
□ - Outstanding Exp - Spare Part
□ - Bill Payable - Account Receivable
□ - Short term loans - Bill Receivable
□ - Proposed Dividends - Accrued Income
□ - Provision for Tax - Prepaid Exp

9
DIFFERENCE BETWEEN PERMANENT & TEMPORARY
WORKING CAPITAL

10
 WORKING CAPITAL MANAGEMENTP PRINCIPLES

Working Capital Management

Principles

Principle of Principle of Principle of

Principle of
Cost of Equity Maturity of
Risk Variation
Capital position Payment
 IMPORTANCE OF WORKING CAPITAL MANAGEMENT

❑ Solvency of the Business

❑ Goodwill
❑ Easy Loans
❑ Cash Discount
❑ Regular Supply of Raw Material
❑ Ability to face crisis
❑ Regular Return Investment
❑ High Morale

12
 OPERATING CYCLE OF WORKING CAPITAL
MANAGEMENT

❑ Conversion of Cash into

Raw Material
❑ Conversion of Raw Material Into
Working Progress
❑ Conversion of work in process into
finish Goods
❑ Conversion of finish Goods into Debtors
❑ Bill Receivable through sales
❑ Conversion of Debtors &
Bill Receivable into Cash

13
 FACTORE AFFECTING WORKING CAPITAL
MANAGEMENT
❑ Nature or Character of Business
❑ Size of Business
❑ Scale of organization
❑ Production Policy
❑ Manufacturing Process
❑ Seasonal Variation
❑ Credit policy
❑ Business cycle
❑ Rate of growth of business

14
 RECENTS RBI GUIDELINES REGARDING WORKING
CAPITAL MANAGEMENT

□ In a move to instill discipline among large

borrowers with working capital facility,
The RBI has mooted a proposal that at
least 40 per cent of the sanctioned limit
should be a term loan component.
□ For borrowers with an aggregate fund-based working capital limit of Rs 1.5 billion
and above from the banking system, a minimum level of ‘Loan component’ of 40
per cent shall be effective from October 1, 2018, the RBI said in draft norms placed
on its website. It has sought feedback from banks and stakeholders till June 26,
2018.

□ The 40 per cent Loan component will be revised to 60 per cent with effect from
April 1, 2019.

15
 WORKING CAPITAL EXAMPLE
Let’s look at Paula’s Retail store as an example. Paula owns and operates a women’s
clothing and apparel store that has the following current assets and liabilities: Since
Paula’s current assets exceed her current liabilities her WC is positive.
Working Capital = Current Assets – Current Liabilities
=120000-82500
= 37500

Current Assets Current Liabilities

Particulars Amount Particulars Amount

Cash 100000 Accounts Payable 75000

Account Receivable 5000 Accured Exp 2500

Inventory 15000 others Trade Debt 5000

120000 82500

16
 CONCLUSION
❖ To develop successfully optimum inventory policies, the management needs
to know about the functions of inventory, the cost of carrying inventory,
economic order quantity and safety stock I want to note that working capital
occupies a peculiar position in the Capital structure of a firm. It is the life-
blood of all types of enterprises, manufacturing and trading both. If the
business has enough working capital, it can maintain its operating efficiency.
Not only that, but adequate working capital provides psychological
satisfaction and relief to the management. Only those enterprises, which have
adequate working capital, can survive in times of depression. It has been
observed that number of business enterprises have failed due to inefficient
management of working capital. Form this point of view, the management of
working capital becomes a tedious exercise for a financial manager of a firm.
The most important point of that, working capital management is not only for
big companies it is also quite important for small firms.

17
 REFRENCES

❖ Bhalla, V. K., (2003), Working Capital Management, New Delhi, Anmol

Publications Private Limited, 5th Edition.

❖ Chandra, Prasanna, (2001), Financial Management: Theory and Practices, New

Delhi, Tata McGraw Hill Publishing Company Limited, 5th Edition.

❖ Khan, M. Y. and Jain, P. K., (2004), Financial Management: Text and Problems,
New Delhi, Tata McGraw Hill Publishing Company Limited, 4th Edition.

❖ Maheshwari, S. N., (2004), Financial Management: Principles and Practices, New

Delhi, Sultan Chand & Sons Educational Publishers, 9th Edition.

❖ Pandey, I. M., (2001), Financial Management, New Delhi, Vikas Publishing House
Private Limited, 8th Edition.

❖ wps.prenhall.com and financenmoney.wordpress.com

❖ www.tutorsonnet.com

18
Thank You !!

19