Upload
mohammed-jashid
View
226
Download
0
Embed Size (px)
Citation preview
7/29/2019 Computation of WC
1/11
Page 1
PRESENTATION ON
COMPUTATION OF WORKING CAPITAL
Presented By
MUHAMMED FAHIK K
Roll No. 31
2nd SEM MBA
7/29/2019 Computation of WC
2/11
Page 2
Working capital management is concerned with the
problem that arise in managing the current
assets(CA) and current liability(CL) and the
interrelationships between them. Its operational goal is
to manage the CA and CL in such a way that a
satisfactory / acceptable level of net working capital(NWC)is maintained.
7/29/2019 Computation of WC
3/11
Page 3
Estimation of working capital requirement involves two steps
Estimation of current asset
Estimation of current liability
Net working capital = Current Asset Current Liability
7/29/2019 Computation of WC
4/11
Page 4
Estimation of Current Asset
Raw Material inventory
Work-in-Process Inventory
Finished Goods Inventory
Debtors
Cash
7/29/2019 Computation of WC
5/11
Page 5
Budgeted production x Cost of RM x Avg inventory holding
(in unit) (per unit) period of RM
a) Raw Material Inventory =52weeks/12 months/365 days
b) work-in-Process Inventory
Budgeted production x estimated WIP cost x Avg inventory holding
(in unit) (per unit) period of WIP
=
52weeks/12 months/365 days
7/29/2019 Computation of WC
6/11
Page 6
c) Finished Goods Inventory
Budgeted production x cost of goods produced x finished goods holding(in unit) (per unit) period
=
52weeks/12 months/365 days
Budgeted credit sales x cost of goods sold x Avg debt collection
(in unit) (per unit) period
d) Debtors = 52weeks/12 months/365 days
e) Cash and Bank Balance
7/29/2019 Computation of WC
7/11
Page 7
Estimation of Current Liability
Trade creditors
Direct Wages
Overheads
Budgeted yearly Production x RM cost x credit period allowed
(in unit) (per unit) by creditors
a) Trade creditors =
52weeks/12 months/365 days
7/29/2019 Computation of WC
8/11
Page 8
Budgeted yearly Production x direct labour cost x Avg time lag in
(in unit) (per unit) payment of wagesb) Direct wages =
52weeks/12 months/365 days
Budgeted yearly production x overhead cost x Avg time lag in payment
(in unit) (per unit) of overhead
c) Overheads =52weeks/12 months/365 days
7/29/2019 Computation of WC
9/11
Page 9
Determination of working capital Requirement for a firm
Particulars Amount (Rs)
1.Current Asset
a) Raw Material Inventory ..
b) Work-in-Process Inventory ..
c) Finished Goods Inventory ..
d) Debtors ..
c) Cash ..
Total Current Asset ( A ) x x x x x x x x
2.Current Liability
a) Creditors ..
b)Wages ..
c)Overheads ..
Total Current Liability (B) x x x x x x x x x
Net Working Capital (A) (B) x x x x x x x x x
Add Margin far contingency
Net Working Capital Required x x x x x x x x x
7/29/2019 Computation of WC
10/11
Page 10
Points to be remembered while estimation of WC requirement
profit should be ignored while calculating WC requirement for the following
reason
profit may or may not be used as WC
Even if it is used it may be reduced by the amount of income tax, drawing,
Dividend paid etc
Depreciation shall not be considered.
WIP cost is estimated using either of the formulas
1) 50% of cost of production is taken
2) Full cost of RM + (50% of wages+50% of overheads)
7/29/2019 Computation of WC
11/11
Page 11
http://virtualhug.files.wordpress.com/2007/07/thank-you.jpghttp://virtualhug.files.wordpress.com/2007/07/thank-you.jpg