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    DR - Shraboni Dutta: Presented To

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    richa sharma
    1) The document discusses concepts related to working capital such as gross working capital, net working capital, operating cycle, and determinants of working capital. 2) It provides calculations for components of the operating cycle like inventory conversion period, debtors conversion period, and creditors deferral period. 3) Issues related to working capital management are discussed including the liquidity vs profitability tradeoff and different working capital policies like conservative, average, and aggressive.

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    DR - Shraboni Dutta: Presented To

    Uploaded by

    richa sharma
    30 views18 pages
    1) The document discusses concepts related to working capital such as gross working capital, net working capital, operating cycle, and determinants of working capital. 2) It provides calculations for components of the operating cycle like inventory conversion period, debtors conversion period, and creditors deferral period. 3) Issues related to working capital management are discussed including the liquidity vs profitability tradeoff and different working capital policies like conservative, average, and aggressive.

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    Working capital management

    Original Title

    WCM

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    1) The document discusses concepts related to working capital such as gross working capital, net working capital, operating cycle, and determinants of working capital. 2) It provides calculations for components of the operating cycle like inventory conversion period, debtors conversion period, and creditors deferral period. 3) Issues related to working capital management are discussed including the liquidity vs profitability tradeoff and different working capital policies like conservative, average, and aggressive.

    Copyright:

    © All Rights Reserved
    Download as PPTX, PDF, TXT or read online from Scribd
    Download as pptx, pdf, or txt
    30 views18 pages

    DR - Shraboni Dutta: Presented To

    Uploaded by

    richa sharma
    1) The document discusses concepts related to working capital such as gross working capital, net working capital, operating cycle, and determinants of working capital. 2) It provides calculations for components of the operating cycle like inventory conversion period, debtors conversion period, and creditors deferral period. 3) Issues related to working capital management are discussed including the liquidity vs profitability tradeoff and different working capital policies like conservative, average, and aggressive.

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    You are on page 1of 18

    Presented to :

    Dr.Shraboni Dutta

    Presented by:
    Richa Kumari
    Akanksha Sharan
    Priyanka Suman Kesri
    Priya kumari Saha
    Laxita Bala
    Aafreen Akhtar
    Aaditya Kumar Singh
    WORKING CAPITAL
    CLASSIFICATION OF WORKING
    CAPITAL
    CONCEPT OF WORKING
    CAPITAL
    • GROSS WORKING CAPITAL NET WORKING
    CAPITAL

     The capital invested in  Excess of current assets


    total current assets exceed the current
    liabilities
     Current assets : debtors,
    cash in hand and bank  Can be positive or
    negative
    balances, Bills
    Receivables, Short term  Current liabilities :
    creditors, Bills payable,
    loans and advances , outstanding expenses
    Prepaid expenses, etc.
    accrued incomes etc.
    OPERATING CYCLE
    COMPUTATION OF LENGTH IF
    OPERATING CYCLE
    Gross Operating Cycle(GOC) Net operating cycle (NOC)

     GOC= ICP+ DCP  NOC= GOC-CDP


     ICP=RMCP+WIPCP+ (creditors deferral period)
    FGCP
     RMCP=RMI÷RMC/ 360

     FGCP=FGI÷CGS/ 360

     DCP=Debtors*360/
    Credit sales
     CDP=Creditors*360/

    Credit purchases
    SUMMARY OF OPERATING CYCLE
    CALCULATIONS
    [Number of days]
    Actual Projected
    GROSS OOERATING CYCLE
    1. Inventory Conversion Period
    Raw material 68 60
    Work in progress 22 25
    Finished goods 38 128 54 139

    2. Debtors Conversion Period 43 47


    3. Gross Operating Cycle (1+2) 171 186
    4. Creditors Deferral Period 35 38
    NET OPERATING CYCLE (3-4) 136 148
    DETERMINANTS OF WORKING
    CAPITAL

     Nature of Business
     Market and Demand Conditions
     Technology and Manufacturing Policy
     Credit Policy
     Suppliers‘ Credit
     Operating Efficiency
     Inflation
    PERMANENT VARIABLE WORKING
    CAPITAL
    PERMANENT & VARIABLE
    WORKING CAPITAL GROWING FIRM
    WORKING CAPITAL MANAGEMENT

     Management of short term liabilities current


    liabilities and short term assets current assets
     Needed to carry out day to day operations

    ASPECTS:
    Time:
    Investment:
    Criticality:
    Growth:
    ISSUES IN WORKING CAPITAL
    MANAGEMENT
    LIQUIDITY vs
    CURRENT ASSETS TO FIXED
    PROFITABILITY:RISK RETURN
    ASSETS
    TRADE OFF
     Support a particular  SOLVENCY : Firm’s
    level of output continuous ability to
    meet maturing
     Output and sales
    obligations
    increase , the need for
    current assets increases  PROFITABILITY : To have
    higher profitability , firm
    will maintain a low level
    of current assets
    CURRENT ASSETS TO FIXED ASSETS
    EFFECT OF WORKING CAPITAL
    POLICIES ₹

    WORKING CONSERVATIVE AVERAGE AGGRESSIVE


    CAPITAL POLICY POLICY A POLICY B POLICY C

    Sale 1500000 1500000 1500000


    EBIT (A) 150000 150000 150000

    Current assets 500000 500000 300000

    Fixed assets 500000 400000 500000


    Total assets (B) 1000000 900000 800000

    Return on total 15% 16.67% 18.75%


    assets (A/B)
    Current assets/ 1.00 0.80 0.60
    Fixed assets
    COST TRADE OFF

    Cost of liquidity : level of current


    assets is high, it has excessive
    liquidity

    Cost of illiquidity : cost of


    holding insufficient current assets

    Total cost: cost of liquidity and


    cost of illiquidity

    The minimum cost point


    indicates the optimum level of
    current assets
    MATCHING or HEDGIGNG
    APPROACH

    The firm’s fixed assets and


    permanent current assets
    are financed with long
    term funds
    The temporary or variable
    or fluctuating current
    assets are financed with
    short term funds
    CONSERVATIVE APPROACH

    The firm finances its


    fixed assets and
    temporary current assets
    with long term funds
    Firm relies on long term
    financing
    Less risk of facing the
    problem of shortage of
    funds
    AGGRESSIVE APPROACH

    The permanent current


    assets are financed
    with short term funds
    Extreme use of short
    term funds makes firm
    more risky
    SHORT-TERM vs LONG-TERM
    FINANCING: A Risk Return Trade-off
     Cost
     Flexibility
     Risk
     Risk-return trade off

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