Project Management

Working
Capital
Management

Under the Guidance of:- Prepared By:-

Prof.Prajwalit.P.Jain. RameshVyas.
 Introduction

 Working capital typically means the firm’s holding

of current or short-term assets such as cash,
receivables, inventory and marketable securities.

 These items are also referred to as circulating capital.

“Circulating capital means current assets of a company

that are changed in the ordinary course of business
from one form to another, as for example, from cash
to inventories, inventories to receivables, receivable
to cash”
 Definition
 
 Working Capital refers to that part of the firm’s capital,
which is required for financing short-term or current assets
such a cash marketable securities, debtors and inventories.

 Funds required for short term purposes or day to day

expenses are working capital.

 Funds thus, invested in current assets keep revolving fast

and are constantly converted into cash and this cash flow
out again in exchange for other current assets.
The Needs and Importance of Net Working
Capital

 It is a qualitative concept which indicates firm’s ability to

meet its operating expenses and short term liabilities.
 It indicates the margin of protection available to the short
term creditors.
 Indicator of financial soundness of an enterprise.
 Its use for the purchase of raw material.
 Its use to pay wages & salaries.
 To incur day to day expenses and overhead costs.
 To provide credit facilities to the customer.
 Net WC is refered as working capital.
 Advantages of Adequate WC:-

 Maintains solvency of business.

 Helps in creating & maintaining goodwill.

 Helps in arranging loans from banks & others on easy and

favourable terms.

 Ensures regular supply of raw materials.

 Regular payment of salaries, wages & other day to day

commitment.
 Disadvantages of Inadequate WC:-
 A concern which has inadequate WC cannot pay its short term
liabilities in time. Thus, loose its reputation & shall not be able
to get good credit facilities.

 Cannot buy its requirements in bulk & cannot avail of

discounts etc.

 Firm cannot pay its day to day expenses and it create

inefficiency.

 Becomes impossible to use efficiently fixed assets due to non

availability of liquid funds.
Management of working capital

 Concerned with to manage the current

assets, the current liabilities and the inter-
relationship that exists between them.

 Working Capital Management Policies of a

firm have a great effect on its profitability,
liquidity and structural health of the
organization
 Proforma - Working Capital
Related to Trading Concern
STATEMENT OF WORKING CAPITAL REQUIREMENTS
Particulars Amt (Rs.)
Current Assets
(i) Cash and Bank balance ----
(ii) Receivables ----
(iii) Stocks ----
(iv)Advance Payments if any ----
xxxxx
Less : Current Liabilities
(i) Creditors -----
(ii) Lag in payment of expenses -----
(iii) Outstanding Liabilities -----
xxxx
WORKING CAPITAL ( CA – CL ) xxx
Add : Provision / Margin for Contingencies -----
NET WORKING CAPITAL REQUIRED XXX
 Related to Manufacturing concern
STATEMENT OF WORKING CAPITAL REQUIREMENTS
Particulars Amt(Rs.)
Current Assets
(i) Stock of R M -----
(ii)Work-in-progress :- (a) Raw Materials -----
(b) Direct Labour -----
(c) Overheads -----
iii) Stock of Finished Goods :- (a) Raw Materials -----
(b) Direct Labour -----
(c) Overheads -----
(iv) Sundry Debtors:- (a) Raw Materials -----
(b) Direct Labour -----
(c) Overheads -----
(v) Payments in Advance -----
(iv) Balance of Cash and Bank -----
(vii) Any other item -----
Less : Current Liabilities
(i) Creditors -----
(ii) Lag in payment of expenses -----
(iii) Any other -----
WORKING CAPITAL ( CA – CL ) xxxx
Add : Provision / Margin for Contingencies -----
NET WORKING CAPITAL REQUIRED XXX
 Ratios associated with WC
Stock Turnover Ratio (Times) COGS
Average Stock
Stock Turnover Ratio (Days) Average Stock x 365
COGS
Receivables Turnover Ratio (Times) Net Credit Sales
Average Accounts Receivable
Average Receivables Period (Days) Avg. A/C Receivable x 365
Net Credit Sales
Payables Turnover Ratio (Times) Net Credit Purchases
Average Accounts Payable
Average Payables Period (Days) Avg. A/C Payable x 365
Net Credit Purchase
Current Ratio Current Assets
Current Liabilities
Quick Ratio CA – Stock
Current Liabilities
Working Capital Turnover Ratio Net Sales
Net Working Capital
Thank You…….