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Overview of Working Capital Management Overview of Working Capital Management

This document provides an overview of working capital management. It defines key terms like gross working capital, net working capital, current assets, and current liabilities. It also explains that working capital management involves investing in current assets and financing those current assets either through short-term or long-term financing. The document discusses approaches to working capital management like the hedging approach and risks vs costs trade-off approaches and how they differ in their use of short-term versus long-term financing.

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subhasedu
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© Attribution Non-Commercial (BY-NC)
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Download as PPT, PDF, TXT or read online on Scribd
101 views

Overview of Working Capital Management Overview of Working Capital Management

This document provides an overview of working capital management. It defines key terms like gross working capital, net working capital, current assets, and current liabilities. It also explains that working capital management involves investing in current assets and financing those current assets either through short-term or long-term financing. The document discusses approaches to working capital management like the hedging approach and risks vs costs trade-off approaches and how they differ in their use of short-term versus long-term financing.

Uploaded by

subhasedu
Copyright
© Attribution Non-Commercial (BY-NC)
Available Formats
Download as PPT, PDF, TXT or read online on Scribd
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Overview

Overview of
of Working
Working
Capital
Capital Management
Management

Composed by:
Subhas. Chakrabarti
M.Com., M.Phil. (Accounting & Finance)

1
Working Capital Management:
An Overview
◆ Gross Working Capital =(Current Assets)
◆ Net Working Capital = (Current Assets - Current Liabilities)
◆ Working Capital Management
◆ Involves investing in current assets and financing of
current assets:

C u r r e n t A s s e t
I n v e s t m e n t

C u r r e L n o t n g - T e r m
L i a b i l i F t i ie n s a n c i n g
2
Working Capital
Capital required to run an organization or that part of capital which is
blocked in assets arising out of the ordinary course of business of the
organization

CURRENT ASSETS CURRENT LIABILITIES


Assets that are converted into cash in the Liabilities that are payable in the ordinary
ordinary course of business within 1 year course of business within 1 year

Gross Working Capital


Net Working Capital
∑ CA ∑CA - ∑ CL

3
Permanent Working Capital
AMOUNT ( Rs.)

Permanent current assets

TIME
4
Temporary Working Capital

Temporary current assets


AMOUNT (Rs.)

Permanent current assets

TIME
5
Hedging (Matching) Approach

Short-term financing**

Current assets*
AMOUNT (Rs.)

Long-term financing
Fixed assets

TIME
6
Hedging (Matching) Approach

Short-term financing**
DOLLAR AMOUNT

Current assets*

Long-term financing
Fixed assets

TIME
7
Risks vs. Costs Trade-Off
(Conservative Approach)

Short-term financing

Current assets
AMOUNT

Long-term financing
( Rs.)

Fixed assets

TIME
8
Risks vs. Costs Trade-Off
(Aggressive Approach)

Short-term financing
AMOUNT (Rs.)

Current assets

Long-term financing
Fixed assets

TIME
9
Summary of Short- vs. Long-
Term Financing
Financing
Maturity
SHORT-TERM LONG-TERM
Asset
Maturity

SHORT-TERM Moderate Low


(Temporary)
Temporary Risk-Profitability Risk-Profitability

LONG-TERM High Moderate


(Permanent) Risk-Profitability Risk-Profitability
Permanent
10

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