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Fund or Cash required to meet the day to day expenses/operations. Excess Current Assets Current Assets Current Liabilities Short-term fund for operations Working Capital typically means the firms holdings of current or short-term assets such as cash, receivables, inventory and marketable securities.
Definition
ICAI Working Capital means the funds available for day-to-day operations of an enterprise.
Shubin Working capital is part of capital which is required for purchase of raw materials and for meeting day-to-day expenditure on salaries, wages, rent and advertising etc.
Regular
Reserve Margin
Seasonal
Special
The amount of current assets required to meet a firms long-term minimum needs.
AMOUNT
TIME
AMOUNT
TIME
Cash Forecasting
The cash forecast is an estimation of the flows in and out of the firms cash account over a particular period of time, usually a quarter, month, week, or day. The cash forecast is primarily intended to produce a very useful piece of information: an estimation of the firms borrowing and lending needs and the uncertainties regarding these needs during various future periods.
Line of Credit
1. Long-Range forecasts
Cash forecasts of 1 or more years into the future are needed primarily to assess the viability of the firms long-range financing and operating policies. Idea of how much cash the firm needs to raise through debt or equity or other sources. It assist managers in establishing dividend policies, determining capital investments, and planning a merger and acquisitions. It are generally based on accounting projections and considered strategic in the sense that possible major charges are examined.
An arrangement between a financial institution, usually a bank, and a customer that establishes a maximum loan balance that the bank will permit the borrower to maintain. The borrower can draw down on the line of credit at any time, as long as he or she does not exceed the maximum set in the agreement. A bank permit the firm to borrow up to a specified limit during a particular time period. A credit line takes place through specific short term notes ranging from 90 days or more. At Maturity the interest on the note is paid along with the principal.
Line of Credit
The advantage of a line of credit over a regular loan is that interest is not usually charged on the part of the line of credit that is unused, and the borrower can draw on the line of credit at any time that he or she needs to. Depending on the agreement with the financial institution, the line of credit may be classified as a demand loan, which means that any outstanding balance will have to be paid immediately at the financial institution's request.
Money Market
As per RBI definitions A market for short terms financial assets that are close substitute for money, facilitates the exchange of money in primary and secondary market.
The money market is a mechanism that deals with the lending and borrowing of short term funds (less than one year). A segment of the financial market in which financial instruments with high liquidity and very short maturities are traded.
Continued.
It doesnt actually deal in cash or deals with substitute of cash like promissory notes & govt papers converted into cash without any transaction cost. money but trade bills, which can loss at low
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Precautionary motive
Transaction motive
1. To meet routine cash requirements to finance transaction in the ordinary course of business To balance current receipts and disbursement Example: Cash payment for purchasing, operating expenses, financial charges
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2.
3.
1. Defensive in nature 2. Holding cash/near-cash as a cushion to meet unexpected contingencies/demand for cash 3. Floods, strikes and failure of important customers 4. Earlier settlement of bills 5. Unexpected slow down in collection of accounts receivable 6. Cancellation of some orders 7. Sharp increase in cost of row materials
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Speculative Motive
1. Holding cash/near-cash to quickly take advantage of opportunities typically outside the normal course of business 2. Positive and aggressive approach 3. Examplesi. An opportunity to purchase raw materials ii. A chance to speculate on interest rate movements iii. Make purchase at favorable prices
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Compensating motive
1. Holding cash/near-cash to compensate banks for providing certain services or loans 2. Example: compensation balancesi. An absolute minimum ii. A minimum average balance
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Features of FRN
All FRNs have a coupon that is reset at fixed intervals in accordance with some preset formula. The features of FRNs: The reference rate linked The margin The reference rate period Frequency of reset Coupon payment frequency Maturity
Role of IMM
Instruments of International Money Market
Short-term financing and investments that are issued or traded internationally. Instruments: Short-term Bank loans, Treasury Bills, Bank Certificates of deposit, Commercial Paper, Bankers Acceptances and repurchase agreements and other short-term assetbacked claims.
Reconciling the cash needs Holding or borrowing liquid claims Effective borrowing-lending spreads Operational efficiency Allocation efficiency Bearing the liquidity risk or interest risk Time Analysis, Credit risk Safety principal