Working Capital

Topics: Inventory, Balance sheet, Accounts receivable Pages: 4 (493 words) Published: July 27, 2011
* Working Capital - Def
* amount of resources that a company requires to effectively cover the usual costs and expenses necessary to operate the business * Working Capital Required = (Increase in accounts receivable + Increase in inventory + Cash inflows i.e. cash in bank, bank loan, other current assets) – (Increase in accounts payable + Cash outflows i.e. prepaid expenses, payment to suppliers, other current liabilities) * Conversion Cycle – Mostly 90-120 days

* Types of working capital
* Fund – Based
* CC (Cash Credit)
* OD (Overdraft)
* Pre-shipping/Post-Shipping credit
* Non-Fund Based
* Letter of Credit
* Bank Guarantee
* Stages in the process
* Sourcing
* Acceptance of the limit by the client(GO/NOGO)
* Credit Appraisal
* Risk approval and sanction
* Documentation/Disbursement
* Sourcing
* Inputs from the customer
* Projected financial
* Need
* Profitability of the company in last 3 years
* Business Profile
* Industry functioning

* Acceptance of the limit
* Checks the feasibility of the case
* Thorough analysis has to be done
* GO/NOGO
* Important Ratio
* Current Ratio
* EBITDA/TOI
* Total debt/TNW
* LTD/TNW
* Assessment and Ratios
* 25% of the turnover
* 20% by Bank
* 5% Net worth
* 3* TNW
* TNW=Share Capital+Reserves & Surpluses-Fictitious asset * Production/Processing Cycle
* Debtors + Inventory-Creditors
* DER(Deb Equity Ratio)
* TOL/TNW
* Net Working Capital
* Current Asset-Current Liability
* Sales
* PAT
* PAT/Sale
* Profitability for each Rs. 100 of sales

* Credit appraisal
* Dedupe Check
* MCA
* CIBIL
* BIFR
* Banking
* Inward return
* Outward Return
* Overdrawing
* DD Return
* Credit summation
* We deduct all the outward return from the total Credit summation * Credit Routing
* Take statement...
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