1. TYPES OF WORKING CAPITAL SNEHAL SANTOSH PAWASKAR DPGD/JL13/2366 WELINGKAR INSTITUTE OF MANAGEMENT DEVELOPMENT AND RESEARCH YEAR OF SUBMISSION JUNE’2015 1

2. 2 TYPES OF WORKING CAPITAL  MEANING OF WORKING CAPITAL  COMPONENTS OF WORKING CAPITAL  SIGNIFICANCE OF WORKING CAPITAL  OPEARATING CYCLE  TYPES OF WORKING CAPITAL  NET Vs GROSS WORKING CAPITAL  FACTORS DETERMINING THE WORKING CAPITAL REQUIREMENTS  IMPORTANCE OR ADVANTAGE OF ADEQUATE WORKING CAPITAL  DISADVANTAGES OF REDUNDANT OR EXCESSIVE WORKING CAPITAL  DISADVANTAGES OF INADEQUATE WORKING CAPITAL  MANAGEMENT OF WORKING CAPITAL  WORKING CAPITAL ANALYSIS

3. Working Capital is define as the “Excess of current assets over current Liabilities and provisions.” That is, the amount of surplus of current assets which remain after deducting current liabilities from total current assets which equal to the amount invested in working capital consisting of work –in-progress, raw material and component stock, consumable item amounts owing by customers and cash in hand or at the bank. MEANING OF WORKING CAPITAL CASHINVENTORIES ACCOUNTS RECEIVABLES MARKETBLE INVESTMENT 3

4. 4 A) CURRENTS ASSETS 1) Sundry Debtors 2) Bills Receivables 3) Cash & Bank Balance 4) Short term Investment 5) Inventories B) CURRENTS LIABILITIES 1) Sundry Creditors 2) Bills Payable 3) Advance Payment 4) Short Borrowings 5) Bank Overdraft COMPONENTS OF WORKING CAPITAL

5. 5 Working Capital is backbone of the enterprise, as it provides number of services, some of them are mentioned below as significance of W.C; 1) It require for uninterrupted business promotion. 2) It is essential to run day to day activities. 3) To ensure maximizing the wealth of the firm. 4) To meet short term obligation of enterprise. 5)To earn considerable profits. SIGNIFICANCE OF WORKING CAPITAL

6. 6 Operation cycle also known as “Cash cycle” it is nothing but a time gap between sales and actual realization of cash from sales proceeds. ACCOUNT RECEIVABLE IN TO CASH CASH IN TO RAW MATERIAL RAW MATERIAL IN TO W.I.P W.I.P IN TO FINISHED GOODS FINISHED GOODS IN TO ACCOUNT RECEIVABLE The continuing flow from cash to suppliers to WIP to F.G. to Debtors to Cash, Aforesaid is the graphical presentation of operating cycle of manufacturing concern. OPERATING CYCLE

7. 7 CASH RAW MATERIAL WORK IN PROGRESS FINISH GOOD DEBTORS The continuing flow from cash to suppliers to WIP to F.G. to Debtors to Cash, Aforesaid is the graphical presentation of operating cycle of manufacturing concern.

8. 8 TYPES OF WORKING CAPITAL 1) Gross Working Capital It refers to the total of all current assets. It represents short term securities, sundry debtors etc. This concept is very much suitable to those firms, where ownership is separated from management and control. 2) Net Working Capital This concept is qualitative, indicating firm’s ability to meet its operating expenses and current liabilities. It can be presented by formula : Net Working Capital = Current Assets – Current Liability It can be further classified in to positive & negative. When C.A.exceeds C.L. we have positive Net W.C.and vise versa.

9. 9 3) Permanent Working Capital It can be define as, the minimum amount of working capital kept by the firm to ensure uninterrupted course of operation. This amount may vary from year to year depending open the changes & sales due to seasonal changes. 4) Temporary Working Capital: Any amount over the permanent level of working is Temporary W.C. It is also called as variable or Fluctuating Working Capital. Its termed as Fluctuating because requirement of C.A.changes due to seasonal variations.

10. 10 5) Balance Sheet Working Capital Balance Sheet Working Capital is one which is calculated from the items appearing in the Balance Sheet. Both Gross and Net Working capital are examples of Balance Sheet Working Capital. 6) Cash Working Capital: Cash working capital refers to narrow concept of working capital, which itself in cash. This capital is required by firms to pay salaries, wages, interests and dividend etc. Items of this working capital appears in Profit & Loss a/c. It shows the impact of various transactions on cash position of a firm.

11. 11 NET V/s GROSS WORKING CAPITAL Sr. No.NET WORKING CAPITALGROSS WORKING CAPITAL 1By nature it is qualitative.By nature it is quantitative. 2Its indicates firms ability to meets current Liability & operating expenses. It points out funds available to meets currents for financing current assets. 3It expressed as C.A. C.L.It indicate total of C.A. 4Popular in accountingPopular in management. 5Suitable for sole Traders.Suitable for companies. 6Its useful to find out true financial position of a firm.. It can’t reveal true financial position of company.

12. 12 FACTORS DETERMINING THE WORKING CAPITAL REQUIREMENTS 1) NATURE OF BUSINESS 2) SIZE OF THE BUSINESS 3) PRODUCTION POLICY 4) LENTH OF PRDUCTION CYCLE 5) SEASONALS VARIATIONS 6) WORKING CAPITAL CYCLE 7) RATE OF STOCK TURNOVER 8) CREDIT POLICY 9) BUSINESS CYCLE 10) RATE OF GROWTH OF BUSINESS 11) EARNING CAPACITY AND DIVIDEND POLICY 12) PRICE LEVEL CHANGES 13) OPEARATING EFFICIENCY 14) MANAGEMENT ABILITY 15) IRREGULARITIES OF SUPPLY 16) IMPORT POLICY 17) ASSEST STRUCTURE 18) IMPORTANCE OF LABOR 19) BANKING FACILITIES

13. 13 IMPORTANCE OR ADVANTAGE OF ADEQUATE WORKING CAPITAL 1) Solvency of the Business 2) Goodwill 3) Easy loans 4) Cash Discounts 5) Regular Supply of Raw Material 6) Regular Payment Of Salaries, Wages And Other Day TO Day Commitments 7) Exploitation Of Favorable Market Conditions 8) Ability To Face Crises 9) Quick And Regular Return On Investments 10) High Morale

14. 14 1)Excessive working capital means ideal funds which earn no profit for the firm and business cannot earn the required rate of return on its investments. 2) Redundant working capital leads to unnecessary purchasing and accumulation of inventories. 3) Excessive working capital implies excessive debtors and defective credit policy which causes higher incidence of bad debts. 4) It may reduce the overall efficiency of the business. 5) If a firm is having excessive working capital then the relations with banks and other financial institution may not be maintained. 6) Due to lower rate of return n investments, the values of shares may also fall. 7) The redundant working capital gives rise to speculative transactions. DISADVANTAGES OF REDUNDANT OR EXCESSIVE WORKING CAPITAL

15. 15 1) Inadequate working capital cause stagnates growth and expansion. 2) It may not able to utilize production facility fully. 3) It becomes difficult to take advantage of profitable business opportunities. 4) It may not able to efficiently utilized fixed asset. This leads to low profitability. 5) This leads to damage credit worthiness of the firm. 6) It may not able to meet short term obligation. 7) Inadequate working capital causes unable to pay its dividend and interest. 8) Inadequate working capital would positively lead to liquidation of firm. DISADVANTAGES OF INADEQUATE WORKING CAPITAL

16. 16 MANAGEMENT OF WORKING CAPITAL Management of working capital is concerned with the problem that arises in attempting to manage the current assets, current liabilities. The basic goal of working capital management is to manage the current assets and current liabilities of a firm in such a way that a satisfactory level of working capital is maintained, i.e. it is neither adequate nor excessive as both the situations are bad for any firm. There should be no shortage of funds and also no working capital should be ideal. WORKING CAPITAL MANAGEMENT POLICES of a firm has a great on its probability, liquidity and structural health of the organization. So working capital management is three dimensional in nature as 1.It concerned with the formulation of policies with regard to profitability, liquidity and risk. 2.It is concerned with the decision about the composition and level of current assets. 3.It is concerned with the decision about the composition and level of current liabilities

17. 17 WORKING CAPITAL ANALYSIS As we know working capital is the life blood and the centre of a business. Adequate amount of working capital is very much essential for the smooth running of the business. And the most important part is the efficient management of working capital in right time. The liquidity position of the firm is totally effected by the management of working capital. So, a study of changes in the uses and sources of working capital is necessary to evaluate the efficiency with which the working capital is employed in a business. This involves the need of working capital analysis. The analysis of working capital can be conducted through a number of devices, such as: 1. Ratio analysis. 2. Fund flow analysis. 3. Budgeting