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  • Working Capital Management: Dr. R.S.Aurora Professor in Management

    Transféré par

    Vidyasagar Gaikwad
    18 vues20 pages
    Fixed Capital and Working Capital differ in. Discounting and compounding not important Increases liquidity although affects profitability can be adjusted with sales fluctuations in the short run. Current assets and current Liabilities: Represent assets which can be converted into cash in less than a year Includes cash, short-term securities, debtors, bills receivables and stock Represents claims of outsiders expected to mature for payment within a year.

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    Working Capital

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    Fixed Capital and Working Capital differ in. Discounting and compounding not important Increases liquidity although affects profitability can be adjusted with sales fluctuations in the short run. Current assets and current Liabilities: Represent assets which can be converted into cash in less than a year Includes cash, short-term securities, debtors, bills receivables and stock Represents claims of outsiders expected to mature for payment within a year.

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    Attribution Non-Commercial (BY-NC)
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    18 vues20 pages

    Working Capital Management: Dr. R.S.Aurora Professor in Management

    Transféré par

    Vidyasagar Gaikwad
    Fixed Capital and Working Capital differ in. Discounting and compounding not important Increases liquidity although affects profitability can be adjusted with sales fluctuations in the short run. Current assets and current Liabilities: Represent assets which can be converted into cash in less than a year Includes cash, short-term securities, debtors, bills receivables and stock Represents claims of outsiders expected to mature for payment within a year.

    Droits d'auteur :

    Attribution Non-Commercial (BY-NC)
    Téléchargez comme PPT, PDF, TXT ou lisez en ligne sur Scribd
    Signaler comme contenu inapproprié
    sur 20

    WORKING CAPITAL MANAGEMENT

    DR. R.S.AURORA PROFESSOR IN MANAGEMENT

    Dr.Rajinder S. Aurora

    Fixed Capital and Working Capital differ in Discounting and compounding not important
    Increases liquidity although affects profitability Can be adjusted with sales fluctuations in the short run

    Dr.Rajinder S. Aurora

    Current Assets and Current Liabilities: Represents assets which can be converted into cash
    in less than a year Includes cash, short-term securities, debtors, bills receivables and stock Represents claims of outsiders expected to mature for payment within a year Includes creditors, bills payable, bank overdraft and outstanding expenses
    Dr.Rajinder S. Aurora 3

    Concepts of Working Capital:

    Gross Working Capital: Investments in current assets Net Working Capital: Difference between current assets and current liabilities Can be Positive or Negative
    Dr.Rajinder S. Aurora 4

    Current Asset Management:


    Needs keep fluctuating Optimum investment in current assets Financing current assets

    Brings liquidity Generates idle investment Excess impairs profitability


    Dr.Rajinder S. Aurora

    Threatens solvency of the firm Inability to meet current obligations

    Operating Cycle:
    The time duration required to convert sales, after the conversion of resources into inventories, into cash. Involves three phases: Acquisition of Resources Manufacturing the Product Sales of the Finished Product
    Dr.Rajinder S. Aurora 6

    Length of the Operating Cycle:


    Influenced by: Inventory conversion period: (a) Time required to produce and sell the product (b) Includes Raw material conversion period, WIP conversion period and Finished goods conversion period Book debts conversion period: (a) Time required to collect outstanding amount
    Dr.Rajinder S. Aurora 7

    Operating Cycle a Manufacturing Firm:


    PURCHASES PAYMENT CREDIT SALE COLLECTION

    RMCP+WIPCP+FGCP

    INVENTORY CONVERSION PERIOD

    RECEIVABLES CONVERSION PERIOD

    PAYABLES

    NET OPERATING CYCLE

    GROSS OPERATING CYCLE

    Dr.Rajinder S. Aurora

    Types of capital based on operating cycle:


    Permanent Working Capital:

    (a) Minimum level of current assets continuously required for carrying on business operations Fluctuating Working Capital:

    (a) Extra capital needed to support changing production and sales activities
    Dr.Rajinder S. Aurora 9

    Permanent and Temporary Working Capital:

    Temporary

    Permanent

    Dr.Rajinder S. Aurora

    10

    Dr.Rajinder S. Aurora

    11

    OVER TRADING:
    Firms with insufficient working capital Attempt to increase sales

    Over-stretch the financial resources of the business Is called overtrading


    Dr.Rajinder S. Aurora 12

    Early warning signs include:


    Pressure on existing cash Exceptional cash generating activities e.g. offering high discounts for cash payment Bank overdraft exceeds authorized limit Seeking greater overdrafts or lines of credit Part-paying suppliers or other creditors Paying bills in cash to secure additional supplies
    Dr.Rajinder S. Aurora

    Contd.

    13

    Contd.

    Management pre-occupation with surviving rather than managing

    Frequent short-term emergency requests to the bank to help pay wages, pending receipt of a cheque

    Dr.Rajinder S. Aurora

    14

    Adequacy of Working Capital:


    Adequacy implies having the right amount of working capital Avoid excessive and paucity of funds Excess funds results in idle capital Paucity impairs profitability, interrupts production and generates inefficiencies

    Dr.Rajinder S. Aurora

    15

    Dangers of Excessive Capital:


    Unnecessary accumulation of inventories Indication of defective credit policy and slack collection period Makes management complacent Tendencies of accumulating inventories to make speculative profits grow

    Dr.Rajinder S. Aurora

    16

    Dangers of Inadequate Working Capital:


    Stagnates growth Difficult to achieve profit targets Operating inefficiencies creep in Ineffective utilization of fixed assets Unable to avail attractive credit opportunities Loss of reputation
    Dr.Rajinder S. Aurora 17

    Determinants of Working Capital:


    Nature and size of business Manufacturing Cycle Sales Growth Demand Conditions Production Policy Contd
    Dr.Rajinder S. Aurora 18

    Contd

    Operating efficiency and performance Price level changes Firms credit Policy Availability of credit

    Dr.Rajinder S. Aurora

    19

    ANY QUESTIONS PLEASE ??

    Dr.Rajinder S. Aurora

    20

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