Monday, August 24, 2015

Working Capital Management Full Info (Capital Requirement, Operating Cycle, Gross, Net Working capital, Sources of Working Capital, Fund based working capital Etc.,)

What is Working Capital
  • Working capital represents the funds which required to manage the day to day business operations
  • This is the funds locked in form of Debtors ( Receivables), Inventory in the business
  • Short term funds which required to meet the daily operations  of the entity
  • Working capital also known as revolving or circulating or short term capital or Asset conversion cycle
  • Funds which are invested keep revolving from one to the other Current Assets
Capital requirement for Business (Difference between Long term Capital & Short term Capital)

Understanding or Difference Current Assets & Current Liabilities

Business Operating Cycle and Type of Business (Manufacturing, Service & Trading)

Working capital Operating cycle

Assets Conversion Cycle 

Gross & Net Working capital

Factors affecting the Working capital

  • Nature of Business
  • Scale of operations
  • Business cycle
  • Seasonal factors
  • Production cycle
  • Credit allowed 
  • Credit availed
  • Operating efficiency 
  • Availability of raw material
  • Growth prospects
  • Level of competition
  • Inflation
Working capital Management
  • The process of managing  the activities and processes related to working capital.
  • This level of management serves as a check and balances system to ensure that the amount of cash flowing into the business is enough to sustain the company's operations.
  • This is an ongoing process that must be evaluated using the current level of assets and liabilities.
  • Working capital management ensures a company has sufficient cash flow in order to meet its short-term debt obligations and operating expenses.
  • Working capital management may involve implementing short-term decisions that may or may not carry over from one earnings period to the next.
Controllability of Stocks

Controllability of Debtors

Controllability of Payables 

Factors determining working capital  Assessment  (Total Current Assets)

Sources of Working Capital 

Working Capital Finance

Fund based Working Capital Finance

Non Fund based Working Capital Finance

Working Capital Finance- Structured Products
  • Commercial Paper
  • Buyers Credit
  • Suppliers Credit
  • Corporate Loans
  • Securitization
  • Factoring
Factors Determining Working Capital Finance Mix

Need of Working Capital Management

  • To make on time payments to Creditors
  • To avail cash discount from suppliers
  • Easy availability of banking funds 
  • Increase in productivity of fixed assets
  • To meet unseen contingencies 
  • Grab new opportunities of the business
  • To reduce the Finance cost
  • To avoid unnecessary pressure in day to day operation
Feel free to reach for any queries
CMA Ramesh Krishnan
Mob:+91 89710 66555


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