Working Capital Management- WCEFM (Group- 7)

7/31/2019 Working Capital Management- WCEFM (Group- 7)

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ByAnish Ghosh 11PGHR05

Brijesh Kumar Singh 11PGHR14Surya Suman Pillai 11PGHR54

Swati Sharma 11PGHR55

Urshilla Thacker 11PGHR57Varun Kansal 11PGHR58


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Capital : Capital i.e. financial capital refers tofunds provided by investors to purchase thereal capital equipment to produce goods or

service. Capital is of following types Fixed Capital

Working capital


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To purchase raw materials, Spare parts and different components

To help meet the selling costs such as packing, advertisement etc.

To take into account day to day expenses incurred and differentoverhead costs such as fuel, power and office expenses, etc.

To pay the wages and salaries of the resources involved.

Maintaining the inventories of raw material, work in WIP, storesand spare and finished goods.

To provide credit facilities to the customers.


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Nature of business

Size and growth of business

Business/trade cycle

Length of production cycle

Fluctuation of supply and seasonal variations

Production policies

Operating efficiency


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Inventory Management

Cash Management

Receivables management


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The term inventory is used to specify the totalityof items of tangible assets and it emcompasses

Finished goods / Saleable

Work-in-progress / Convertible

Material and supplies / Consumable


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Having stock available as and when they are required.

Utilization of the available storage space but prevention of stocklevels from exceeding space available.

Maintaining adequate accountability of inventory assets.

Provision of, on item by- item basis, for re-order point and orderthat much quantity which would ensure that the total result

confirmed with the constraints and objective of inventory control.

Keeping low investment in inventories, carrying cost as anobsolesce losses as the minimum.


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The characteristics of receivables are given as

It involve element of risk which should be carefully analysis.

It is based on economic value. To the buyer, the economic value ingoods or services passes immediately at the time of sale, whileseller expects an equivalent value to be received later on

It implies futurity. The cash payment for goods or serves received

by the buyer will be made by him in a future period.


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Trade credit

Bank finance for working capital

Term loan

Overdraft

Cash Credit

Bills Purchased and discounted

Letter of credit


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Conservative Policy, and Aggressive Policy

Optimum Inventory

Self-Collection Policy/Agency or Dealership

System

Distributed Cash Management System

Use of Credit Deferral Policy as Financing

Alternative


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Use of Information System and GoodTechnique like JIT for Inventory Optimization

Debtors - Techniques like Factoring

Use of Credit Deferral Policy as Financing

Alternative and Also Bank Credit

Centralized Cash Management System


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Consists of : ICP(Inventory Conversion Period)and DCP(Debtors Conversion Period)

.In Services companies, ICP is either zero or

close to zero. In manufacturing companies, both ICP and

DCP are relevant

In IT and other services companies, cashconversion cycle is very long so they requiregood amount of cash balances


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Efficiency Ratios: Working Capital Turnover Ratio

Inventory Turnover Ratio

Receivables Turnover Ratio

Current Assets Turnover Ratio

Liquidity Ratios:

Current Ratio Quick Ratio

Absolute Liquid Ratio

Documents

Working Capital Management- WCEFM (Group- 7)