1. Ptesented bySubhasish champatisingh Roll no-03 Ibs,bbsr

2. Working Capital refers to that part of the firms capital, whichis required for financing short-term or current assets such acash marketable securities, debtors and inventories. Funds thus, invested in current assets keep revolving fast andare constantly converted into cash and this cash flow out againin exchange for other current assets. Working Capital is also known as revolving or circulatingcapital or short-term capital. 3. circulating capital means current assets of a companythat are changed in the ordinary course of business fromone form to another, as for example, from cash toinventories, inventories to receivables, receivable tocash 4. 4 5. As profits earned depend upon magnitude ofsales and they do not convert into cashinstantly, thus there is a need for workingcapital in the form of CA so as to deal with theproblem arising from lack of immediaterealization of cash against goods sold. This is referred to as Operating or CashCycle . It is defined as The continuing flow from cashto suppliers, to inventory , to accountsreceivable & back into cash . 6. Thefirm has to maintain cash balance to paythe bills as they come due. In addition, the company must invest ininventories to fill customer orders promptly. And finally, the company invests in accountsreceivable to extend credit to customers. Operating cycle is equal to the length ofinventory and receivable conversion periods. 7. Gross Working Capital Net working Capital 8. Total Current assets Where Current assets are the assets thatcan be converted into cash within anaccounting year & include cash , debtorsetc. Referred as Economics Concept sinceassets are employed to derive a rate ofreturn. 9. CA CL It indicates liquidity position of a firm. It suggests the extent to which working capital needs maybe financed.Current Assets ( less )Current Liabilities Current AssetsCurrent LiabilitiesInventories Trade Payables Raw MaterialsAccruals Work-in-Progress Taxation/Dividends Finished Goods Short-Term BorrowingsTrade ReceivablesPrepaymentsBank/Cash9 10. Having sufficient funds available to meet all foreseen and unforeseen obligations10 11. CURRENT ASSETS Inventory Sundry Debtors Cash and Bank Balances Loans and advances CURRENT LIABILITIES Sundry creditors Short term loans Provisions 12. 1. Nature of Business- Different Industries have different WorkingCapital requirements. Manufacturing and Trading Companies will havea high proportion of Current Assets in the formof inventory of Raw Materials, Work-in-Progress, accounts Receivable, Cash andAccounts Payable as Current Liability. But in case of public utilities may have limitedneed for working capital because they only havecash sales, & supply services, not products andno funds will be tied up in debtors & stock. 13. 2. Growth and Expansion As the company grows, it is logical to expect thata larger amount of working capital is required.3. Degree of Competition in the Market When the degree of competition in the market for finished goods in an industry is high, then companies belonging to the industry may have to resort to an increased credit period to its customers to push their products. These practices are likely to result in a high proportion of accounts receivable. 14. 4. Technology & manufacturing process Longerthe manufacturing cycle, larger will be thefirms working capital requirements. Exa- Manufacturing cycle in case of boiler- Moreworking capital needed depending on its size,(may range between Six to Twenty-four months. Exa- Manufacturing cycle in case of detergentpowder, soaps, chocolate etc- less working capital. 15. Interdependence Among Components of Working capitalFinishedGoodsWork inSelling andProgressDistribution, GeneralAdministration andSundryFinancial costsDebtors orAccountsWages, SalariesReceivables and ManufacturingcostsRawMaterials,ComponentsStores etc. Sundry CashCreditors or AccountsThe Operating CyclePayable 16. Operating Cycle ConceptCompany start with cash, go through the successivesegments of the operating cycle to get cash.Operating cycle is the time duration required to convertsales, after the conversion of resources in to inventories, into cash.Raw material storage period Conversion period Finished goods storage period Average collection period 17. Grossoperating cycle- The duration above is known as gross operating cycle. Thegross operating cycle = Raw material Storage period + Conversion Period + Finished goods storage period + Average collection period NOTE- If there is no receivables the cycle is reduced. 18. Net operating cycle- When the averagepayment period is deducted from the grossoperating cycle is known as net operatingcycleThe Net operating cycle = Raw materialStorage period + Conversion Period +Finished goods storage period + Averagecollection period Average Payment Period 19. Time Permanent Temporary or Variable 20. The amount of current assets required tomeet a firms long-term minimum needs.DOLLAR AMOUNT Permanent current assets TIME 21. The amount of current assets that varies with seasonal requirements.Temporary current assetsDOLLAR AMOUNT Permanent current assetsTIME 22. Weneed working capital for the smoothfunctioning. Magnitude of current assets varies with thechanges in the operating cycle There will always be a minimum level ofcurrent assets (i.e. permanent or fixed currentassets) Depending upon the production and sales theneed for the working capital over and abovethe fixed level will fluctuate. 23. A larger investment in current assets would mean a low rate of return on investment for the firm, as excess investment in current assets will not earn enough return. On the other hand a smaller investment in current assets would mean interrupted production & sales. 24. Both excessive as well as inadequate working capitalpositions are harmful for the company Excessive working capital Unnecessary inventory accumulation. Shows a defective credit policy and high collection period. leads to marginal inefficiency of the management. 25. Stagnates growth Difficult to implement operating plans. Reduction in operating efficiency. Fixed assets cannot be utilised efficiently. Banks will hesitate in extending credit. Affects the goodwill of the firm. 26. For more information Log on toTHANKU subhasish.champatisingh@gmail.com