Working Capital Management
MANAGEMENT OF WORKING CAPITAL
1. Meaning and Types of Finance: Finance
- Finance is the Art & Science of Managing Money - Finance is the Art of passing currency from hand to hand until it finally disappears
Types & Sources of Finance
____________________________________________________________
________ Long Term Sources of Finance
- Finance required to meet Capital Expenditure - Also, known as Fixed Capital Finance
Short Term Sources of Finance
- Finance required to meet day-to-day Business requirements - Also, known as Working Capital Finance
2. Working Capital Management: Working Capital (WC)
____________________________________________________________
____________________________ Basics regarding WC Meaning of WC Working Capital Concept Factors Affecting WC Meaning of WC Management Importance of WC Management Classification/Type of WC A On the Basis of Concept
(i) (ii)
Gross Working Capital Net Working Capital (Positive & Negative Working Capital)
Methods of estimating WC Conventional Method Operating Cycle Method Cash Cost Method Balance Sheet Method
B On the Basis of Periodicity
(i) (ii)
Fixed / Permanent Working Capital (Regular & Reserve Margin/ Cushion WC) Variable Working Capital (Seasonal & Special Working Capital)
Parag Nalin Doshi
1/12/2009
www.CAalley.com
Meaning of Working Capital:
- Working Capital is the amount of Capital that a Business has available to meet the day-to-day cash requirements of its operations - Working Capital is the difference between resources in cash or readily convertible into cash (Current Assets) and organizational commitments for which cash will soon be required (Current Liabilities) - It refers to the amount of Current Assets that exceeds Current Liabilities (i.e. CA - CL) - Working Capital refers to that part of the firm’s Capital, which is required for Financing Short-Term or Current Assets such as Cash, Marketable Securities, Debtors and Inventories. Working Capital is also
1. Meaning and Types of Finance: Finance
- Finance is the Art & Science of Managing Money - Finance is the Art of passing currency from hand to hand until it finally disappears
Types & Sources of Finance
____________________________________________________________
________ Long Term Sources of Finance
- Finance required to meet Capital Expenditure - Also, known as Fixed Capital Finance
Short Term Sources of Finance
- Finance required to meet day-to-day Business requirements - Also, known as Working Capital Finance
2. Working Capital Management: Working Capital (WC)
____________________________________________________________
____________________________ Basics regarding WC Meaning of WC Working Capital Concept Factors Affecting WC Meaning of WC Management Importance of WC Management Classification/Type of WC A On the Basis of Concept
(i) (ii)
Gross Working Capital Net Working Capital (Positive & Negative Working Capital)
Methods of estimating WC Conventional Method Operating Cycle Method Cash Cost Method Balance Sheet Method
B On the Basis of Periodicity
(i) (ii)
Fixed / Permanent Working Capital (Regular & Reserve Margin/ Cushion WC) Variable Working Capital (Seasonal & Special Working Capital)
Parag Nalin Doshi
1/12/2009
www.CAalley.com
Meaning of Working Capital:
- Working Capital is the amount of Capital that a Business has available to meet the day-to-day cash requirements of its operations - Working Capital is the difference between resources in cash or readily convertible into cash (Current Assets) and organizational commitments for which cash will soon be required (Current Liabilities) - It refers to the amount of Current Assets that exceeds Current Liabilities (i.e. CA - CL) - Working Capital refers to that part of the firm’s Capital, which is required for Financing Short-Term or Current Assets such as Cash, Marketable Securities, Debtors and Inventories. Working Capital is also