Professional Documents
Culture Documents
A perspective
Some basics
Long-term Assets
Short-term Assets
Long-term Funds
Short-term Assets
Working Capital
Centuries old concept Necessity of every business Needed for various purposes Requirement varies according to industry, size,
technology, creditability, etc.
Working Capital
Working
capital typically means the firms holding of current or short-term assets such as cash, receivables, inventory and marketable securities. These items are also referred to as circulating capital Corporate executives devote a considerable amount of attention to the management of working capital.
capital, which is required for financing short-term or current assets such a cash marketable securities, debtors and inventories. Funds thus, invested in current assets keep revolving fast and are constantly converted into cash and this cash flow out again in exchange for other current assets. Working Capital is also known as revolving or circulating capital or short-term capital.
The definition is meaningful only as an indication of the firms current solvency in repaying its creditors. When firms speak of shortage of working capital they in fact possibly imply scarcity of cash resources.
The firm has to maintain cash balance to pay the bills as they come due
In addition, the company must invest in inventories to fill customer orders promptly
And finally, the company invests in accounts receivable to extend credit to customers
Operating cycle is equal to the length of inventory and receivable conversion periods.
WORKING CAPITAL
BASIS OF CONCEPT
Gross Working Capital Net Working Capital
BASIS OF TIME
Permanent / Fixed WC Temporary / Variable WC
Operating cycle
Accounts Payable
Raw Materials
WIP
Cash
Finished Goods
Accounts Receivable
SALES
Rs
Fixed Assets
Time
have a great effect on its profitability, liquidity and structural health of the organization.
Management of cash
1. Importance of Cash When planning the short or long-term funding requirements of a business, it is more important to forecast the likely cash requirements than to project profitability etc.
More businesses fail for lack of cash than for want of profit.
Cash
flow planning entails forecasting and tabulating all significant cash inflows relating to sales, new loans, interest received etc., and then analyzing in detail the timing of expected payments relating to suppliers, wages, other expenses, capital expenditure, loan repayments, dividends, tax, interest payments etc.
Centralization of Payments
Inter-bank transfers Making use of Float
Cash Credit / Overdraft Cash Management Working Capital Demand Loan Bill Discounting / Receivable Discounting Export Finance / Bill Negotiation Term Loans Letter of Credit Bank Guarantee Foreign Currency Loans
Age of Business > 2 years Turnover > Rs. 2 cr. Tangible Net Worth > Rs.1 cr. EBITDA margin > 5% PAT margin : profitable operations for the last 2
years
Parameter
Experience in Industry; commitment to timely order execution; consistency in quality Large scale servicing capability for different clients; location of base in areas of good quality labour, rentals & power Wide range of services; USP in the services offered; value added/ premium services
Capabilities
Company Profile
Partners
Key management must be technically qualified; relevant domain knowledge pool; reputation of promoters
THANK YOU