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Wroking Capital Management of Britannia Industries
Wroking Capital Management of Britannia Industries
. : DPGD/JA12/0664 Specialization Name : Finance Name of the Institute : Welingkar Institute of Management. Year : December 2013
There are two interpretation of working capital under the balance sheet concept: Gross Working Capital Net Working Capital
The term working capital refers to the Gross working capital and represents the amount of funds invested in current assets. Thus, the gross working capital is the capital invested in total current assets of the enterprises. Current assets are those assets which are converted into cash within short periods of normally one accounting year. The term working capital refers to the net working capital. Net working capital is the excess of current assets over current liabilities or say:
Net Working Capital = Current Assets - Current Liabilities.
The gross operating cycle of a firm is equal to the length of the inventories and receivables conversion periods. Thus, Gross Operating Cycle = RMCP + WIPCP + FGCP + RCP
RMCP = Raw Material Conversion Period WIPCP = Work -in- Process Conversion Period FGCP = Finished Goods Conversion Period
Limitations: Large number of executive staff & their assistants are appointed, at the same time they are highly paid which affects to the profitability of company. Dead Stock & Wastage of Material affects to the cost of material. Delivery of Material is not as per the schedule/time commitment, so it also affects to the sales of company.
Recommendation: Company should increase the inventory holding period. It is the major part of working capital of company. Company has to take control on cash balance because cash is non earning assets and increase cost of funds. Company should raise it fund through short term sources for short term requirement of funds.