“WORKING CAPITAL”

Presented by:
Kumar Mayank
Nirmal Singh
Sabnam Begum
Sarbani Banerjee
 INTRODUCTION
 Working Capital is the funds required by a unit
for its day to day working.
 Gross working capital

 Net working capital

 Working capital gap

 Working capital= current assets-current liability

 WORKING CAPITAL CONCEPTS
Net Working Capital
Current Assets - Current Liabilities.
Gross Working Capital
The firm’s investment in current assets.
Working Capital Management
The administration of the firm’s current assets and the financing
needed to support current assets.
 SIGNIFICANCE OF WORKING CAPITAL
MANAGEMENT
 In a typical manufacturing firm, current assets exceed
one-half of total assets.
 Excessive levels can result in a substandard Return on
Investment (ROI).
 Current liabilities are the principal source of external
financing for small firms.
 Requires continuous, day-to-day managerial
supervision.
 Working capital management affects the company’s
risk, return, and share price.
THE WORKING CAPITAL CYCLE
Inventory
Raw materials/
consumables

Purchases Production Sales

Inventory
Trade Work in Trade
payables progress/finished receivables
goods

Cash
Payments Receipts
(equivalents)
WORKING CAPITAL
MANAGEMENT OBJECTIVES
1) Keeping at a minimum the cash tied up in working capital
cycle
2) Preserving sufficient cash or readily convertible current
assets to meet payment demands

1 = trade-off between financial and commercial policy

2 = liquidity-objective
GROSS WORKING CAPITAL
Assets Financing
Fixed assets
Equity

Debt
(financial loans)
Current assets

Current liabilities
NET WORKING CAPITAL
Assets Financing

Fixed assets
Equity

Net working capital

Debt

Current liabilities
Current assets
 CLASSIFICATIONS
 Components
 Cash, marketable securities, receivables, and inventory
 Time
 Permanent
 Temporary
 PERMANENT WORKING CAPITAL
 The amount of current assets required to meet a firm’s long-term
minimum needs.

amount

Permanent current assets

 TEMPORARY WORKING CAPITAL
 The amount of current assets that varies with seasonal
requirements.

Temporary current assets

AMOUNT

Permanent current assets

TIME
 CASE STUDY:
 M/s Priya Foods Ltd is a new company floated by M/s
ramya foods Ltd, which enjoys various credit facilities
from a branch.M/s ramya Foods Ltd is in the business
manufacturing biscuits, now encouraged by the growing
demand for wafers, the promoters of ramya have
incorporated M/s priya foods Ltd for manufacturing
Cream wafers. The conduct of accounts of M/s Ramya
Foods Ltd is satisfactory.
 M/s Priya Foods Ltd has approached the bank for certain
facilities
 Medium term loan = Rs 20 lacs
 Working capital limit = Rs 3 lacs
 CONCLUSIONS
 THE NWC IS RS 2,60,000.
 HOWEVER THE WORKING CAPITAL LIMIT IS RS
3,00,000.