2.  Samreen Bangi (7)  Tabish Parkar (36)
 Wasim Dalvi (12)  Reshma Shaikh (48)
 Shweta Gujar (17)  Reshma Singh (54)

3.  Working capital means current assets such as cash,
accounts receivables and inventory etc.
 Working capital or circulating capital indicates
circular flow of funds is the day-to-day or routine
activities of business
 The management of working capital is more important
than the management of fixed assets
 The fate of most of the businesses very largely depends
upon the manner in which their working capital is
managed.

4.  Gerstenberg – “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 receivable, receivables into cash.”

5.  According to one school of thought, working capital
represents all current assets of the Company. They believe
that working capital represents those assets, which change
their form during the process of production.
Working Capital = Total Current Assets
 According to the other school of thought, working capital is
the excess of current assets over current liabilities.
Working Capital = Current Assets – Current Liabilities

6. CONSTITUENTS OF WORKING
CAPITAL
 CURRENT ASSETS
 Inventory
 Sundry Debtors
 Cash and Bank Balances
 Loans and advances
 CURRENT LIABILITIES
 Sundry creditors
 Short term loans
 Outstanding expenses

7. Type of Working Capital
On basis of Requirement
concept Measurement
Temporary Permanent
Gross Net Wc
Wc
Positive Negative

8.  Operating Cycle is the time duration required to convert sales,
after the conversion of resources into inventories, into cash

9.  A company’s operating cycle typically consists of
three primary activities:
 Purchasing resources
 Producing the product and
 Distributing (selling) the product
 These activities results in inflow and out flow of funds
that are both unsynchronized and uncertain.
 Unsynchronized because cash disbursements (for
example, payments for resource purchases) usually take
place before cash receipts (for example collection of
receivables).
 They are uncertain because future sales and costs, which
generate the respective receipts and disbursements,
cannot be forecasted with complete accuracy.

10. Accounts Payable Value Addition
Raw WIP
Materials
THE WORKING CAPITAL
Cash CYCLE Finished
(OPERATING CYCLE) Goods
Accounts SALES
Receivable

11. Ratios associated with WCM
Stock Turnover Ratio COGS
(Times) AVERAGE STOCK
Stock Turnover Ratio (Days) Average Stock x 365
COGS
Receivables Turnover Ratio Net Credit Sales
(Times) Average Accounts
Receivable

12. Average Receivables Period Avg A/C Receivable x 365
(Days) Net Credit Sales
Payables Turnover Ratio Net Credit Purchases
(Times) Average Accounts
Receivable
Average Payables Period Avg A/C Receivable x 365
(Days) Net Credit Sales

13. Current Ratio Current Assets
Current Liabilities
Quick Ratio CA – Stock
Current Liabilities
Working Capital Turnover Net Sales
Ratio Net Working Capital

14. Particulars Amount
Material 48000
Labour 36000
Factory Over Head 24000
Total Cost 108000
Add: Profit 12000
Sales 120000
Raw Material is stock for two months before it is issued to factory.
Production cycle takes one month.
FG are in stock for 1 ½ months
Debtors are allowed 3 months credit, creditors give 2 months credit
Expenses are outstanding for 1 month
Company maintains a cash balance of 20000

15. Particulars Amount
Current Assets
Stock:
Raw Material: 48000 x 2/12 8000
WIP: Material: 48000 x 1/12 = 4000
Labour : 36000 x 1/12*50% = 1500
OH : 24000 x 1/12*50% = 1000 6500
Finished Goods : 108000 x 1.5/12 13500
Debtors : 120000 x 3/12 30000
Cash / Bank 20000
Total A 78000

16. Particulars Amount
Current Liabilities
Creditors : 48000 x 2/12 8000
O/S Expenses (36000+24000)* 1/12 5000
Total B 13000
Total A – Total B: Estimated WC 65000

17. Each component of working capital
(namely inventory, receivables and
payables) has two dimensions ........TIME
......... and MONEY, when it comes to
managing working capital

18.  You can get money to move faster around the
cycle or reduce the amount of money tied up.
Then, business will generate more cash or it will
need to borrow less money to fund working
capital.
 As a consequence, you could reduce the cost
of bank interest or you'll have additional free
money available to support additional sales
growth or investment.
 Similarly, if you can negotiate improved
terms with suppliers e.g. get longer credit or an
increased credit limit, you effectively create free
finance to help fund future sales.

19. If you Then ......
Collect receivables (debtors) You release cash from the
faster cycle
Collect receivables (debtors) Your receivables soak up
slower cash
Get better credit (in terms You increase your cash
of duration or amount) from resources
suppliers
Shift inventory (stocks) You free up cash
faster
Move inventory (stocks) You consume more cash
slower

23.  The size and nature of investment in current assets is a
function of different factors such as type of products
manufactured, the length of operating cycle, the sales
level, inventory policies, unexpected demand and
unanticipated delays in obtaining new inventories,
credit policies and current assets.

24.  Nature of the Industry & Business
 Demand of Industry
 Volume of Sales
 Terms of Purchase and Sales
 Inventory Turnover
 Current Assets requirements
 Production Cycle
 Inflation or Price level changes
 Profit planning and control
 Operation efficiency
 Attitude towards Risk

25. Amount Variable Working Capital
of
Working
Capital
Permanent Working Capital
Time

26. Variable Working Capital
Amount
of
Working
Capital
Permanent Working Capital
Time

27. Working Capital Management

28. Working Capital Management
Cash Receivables Inventory
Management Management Management

29. Cash Management
• Identify the cash balance which allows for the business to
meet day to day expenses
• reduces cash holding costs
Receivables Management
• Money which is owed to a company by a customer for
products and services provided on credit
• Identify the appropriate credit policy
Inventory Management
• Identify the level of inventory which allows for uninterrupted
production
• Reduces the investment in raw materials, minimizes
reordering costs and hence increases cash flow