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Unit 9 PPT

The document discusses Working Capital Management, defining working capital as the capital needed for day-to-day business expenses. It outlines different types of working capital based on concepts (gross and net working capital) and need (permanent and temporary working capital). Additionally, it explains the calculation of the operating cycle and working capital requirements for businesses.

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Vikash Burnwal
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9 views

Unit 9 PPT

The document discusses Working Capital Management, defining working capital as the capital needed for day-to-day business expenses. It outlines different types of working capital based on concepts (gross and net working capital) and need (permanent and temporary working capital). Additionally, it explains the calculation of the operating cycle and working capital requirements for businesses.

Uploaded by

Vikash Burnwal
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
Download as PDF, TXT or read online on Scribd
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1

OMBC 203
FINANCIAL MANAGEMENT (FM)

Unit 9:
Working Capital Management

2
MEANING OF WORKING CAPITAL

• Working Capital is that capital which is involved in the


current assets of the business. Basically it is the capital
which is required to meet the day to day expenses of the
business.

3
•TYPES/KINDS OF WORKING CAPITAL
•On the basis of Concept
•Gross Working Capital

•Net Working Capital

•On the basis of need


•Permanent Working Capital

•Temporary Working Capital

4
ON THE BASIS OF CONCEPTS

Gross working capital = Total current assets

•Arguments in the favour of this concept :


•Management is concerned with total current assets as they
represent the funds available for operating expenses.

•Gross Concept gives the ideas about the liquidity and profitability
of business.

•Every increase in current borrowings will increase


•current assets.
ON THE BASIS OF CONCEPTS

Net working capital = Current assets - Current Liabilities

•Arguments in the favour of this concept :


•This concept helps the creditors in measuring liquidity.
•It gives idea about how much to invest in current assets.
•Only the surplus can be used to meet contingencies.
ON THE BASIS NEED

Permanent working Capital

The sum up of the funds required to finance the minimum level of


current assets of the business is known as the permanent working
capital. This capital is required every time to put the business into
working condition.

• Regular working Capital


• Reserve Working Capital
ON THE BASIS NEED

Temporary working Capital

It is required to explore the short term opportunities of the market. The


requirement of temporary working capital varies with time period.

• Seasonal working capital


• Special working capital
WORKING CAPITAL NEEDS OF DIFFERENT
FIRMS
CONCEPTS OF WORKING CAPITAL

•Balance Sheet Concept


•Gross working Capital
•Net working Capital
CALCULATION OF DURATION OF OPERATING CYCLE

Duration of raw material storage stage


+
Duration of work in process stage
+
Duration of finished goods stage
+
Duration of receivables collection stage
-
Duration of the credit period allowed by suppliers

O=R+W+F+D-C
ESTIMATION OF WORKING CAPITAL REQUIREMENTS

• Calculate no. of operating cycles in a year i.e


365
no. of days in a operating cycle

• Total operating exp. Of the year


No. of the operating cycle in the year

The resulted amount plus additional amount for contingences


will be the avg. requirement of working capital.
THE OPERATING CYCLE CONCEPT

Receivable

Cash Sale

Inventory

Labour

Assets, Taxes Profits……


CASH CONVERSATION CYCLE

Purchase Pay for Sell


Collect
Inventory Inventory Inventory Receivables
On Credit
THANK YOU
15

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