Working Capital Management

With Special Ref. to Cash Conversion Cycle

Working Capital

Working capital is business cash that is needed for day-to-day operations. Funds required to be invested in the business for a short period, up to one year. Also known as short term capital or circulating capital.

Positive & Negative W.C.

Positive working capital means that the company is able to pay off its short-term liabilities. Negative working capital means that a company currently is unable to meet its short-term liabilities with its current assets (cash, accounts receivable and inventory).

Gross & Net W.C.

Gross Working Capital, is firm's total current assets including cash, marketable securities, accounts receivable, and inventory. Gross Working Capital = Total of Current Asset.
Net Working Capital is, Current assets - Current liabilities or in other words the portion of current assets that is left from financing through current liabilities.

Need for Working Capital

To hold the stock of raw mtrl. to facilitate uninterrupted supply of them to production process.
To hold the stock of WIP for process period. To hold the stock of finished goods to meet continous & sudden customer demand. To grant credit to its customers for marketing & competitive reasons. Needed because of existence of Operating cycle.

Operating Cycle

Duration of time between acquisition of supplies & the collection of cash from receivables.
CASH
B/R Raw Mtrl.

DEBT ORS

WIP

SALE S

FG

Working Capital Management

1.

2.

WCM means planning, organising, directing and controlling of working capital. Combination of policies and techniques for the management of working capital: Cash management. Identify the cash balance which allows for the business to meet day to day expenses, but reduces cash holding costs. Inventory management. Identify the level of inventory which allows for uninterrupted production but reduces the investment in raw materials - and minimizes reordering costs and hence increases cash flow.

3. Besides this, the lead times in production should

be lowered to reduce WIP.

4.Finished Goods should be kept on as low level as possible to avoid over production by methods like SCM, JIT, EOQ.
5. Debtors management. Identify the appropriate credit policy, i.e. credit terms which will attract customers, such that any impact on cash flows and the cash conversion cycle will be offset by increased revenue and hence Return on capital.

THANK YOU

Presented By: ABI ABRAHAM