working capital management

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Working capital management : 

By RAHEEM BAKSH NDIIT NEW DELHI Working capital management By RAHEEM BAKSH NDIIT NEW DELHI

Working capital management : 

By RAHEEM BAKSH NDIIT NEW DELHI Working capital management

Working Capital Issues : 

By RAHEEM BAKSH NDIIT NEW DELHI Working Capital Issues Financing Current Assets: Short-Term and Long-Term Mix Combining Liability Structure and Current Asset Decisions

Tandon committee norms-style of credit : 

By RAHEEM BAKSH NDIIT NEW DELHI Tandon committee norms-style of credit the first and most substantial work in the field of working capital finance in india was done by the Tandon committee. the committee aimed at inculcating in the barrowers the habit of making in effective financing planning through a system of reward and penalty.It suggested that the working capital facility should be bifurcated into two component. 1.Fixed or demand loan component 2.Variable or cash credit component

Tandon committee norms-style of credit : 

By RAHEEM BAKSH NDIIT NEW DELHI Tandon committee norms-style of credit The facilities given by bank Cash credit Bank overdraft Bill discounting Bill acceptance Line of credit Letter of credit

Concepts of working Capital : 

By RAHEEM BAKSH NDIIT NEW DELHI Concepts of working Capital Net Working Capital Current Assets - Current Liabilities. Gross Working Capital The firm’s investment in current assets. Working Capital Management The administration of the firm’s current assets and the financing needed to support current assets

Significance of Working Capital Management : 

By RAHEEM BAKSH NDIIT NEW DELHI Significance of Working Capital Management In a typical manufacturing firm, current assets exceed one-half of total assets. Excessive levels can result in a substandard Return on Investment (ROI). Current liabilities are the principal source of external financing for small firms. Requires continuous, day-to-day managerial supervision. Working capital management affects the company’s risk, return, and share price.

Balance sheet : 

By RAHEEM BAKSH NDIIT NEW DELHI Balance sheet Cash marketable security, Inventory and A/c receivable Short term notice, Accrued expenses account payable

Factors influence W.C requirement : 

By RAHEEM BAKSH NDIIT NEW DELHI Factors influence W.C requirement Nature of business Seasonality of operation Credit policy Supply condition Growth of business Business standing

Classifications of Working Capital : 

By RAHEEM BAKSH NDIIT NEW DELHI Classifications of Working Capital

Permanent Working Capital[Assets] : 

By RAHEEM BAKSH NDIIT NEW DELHI Permanent Working Capital[Assets] Permanent current assets Time Amount

Temporary Working Capital : 

By RAHEEM BAKSH NDIIT NEW DELHI Temporary Working Capital The amount of current assets that varies with seasonal requirements Permanent current assets Time Amount Temporary current assets

Source of finance : 

By RAHEEM BAKSH NDIIT NEW DELHI Source of finance Short term finance Long term finance

Source of short term finance : 

By RAHEEM BAKSH NDIIT NEW DELHI Source of short term finance Unsecured Accrued wages and taxes Trade off Bank credit Commercial paper Secured A/c receivable loans Inventory loans Unsecured Shares Unsecured debenture Public deposits Retain earnings Secured Financial institutions loans Secured debenture

Operating cycle : 

By RAHEEM BAKSH NDIIT NEW DELHI Operating cycle A business should reduce its operating cycle the point where the savings obtained are equal to the cost of implementation Cash operating cycle Purchase row material cash Cash receivable collection Row mte convert in to work in progress Sale of goods on credit Finished goods Finished goods holding Work in progress component added

Material and labor expenses : 

By RAHEEM BAKSH NDIIT NEW DELHI Material and labor expenses

Hedging (or Maturity Matching) Approach : 

By RAHEEM BAKSH NDIIT NEW DELHI Hedging (or Maturity Matching) Approach A method of financing where each asset would be offset with a financing instrument of the same approximate maturity. Long-term financing Fixed assets TIME AMOUNT Current assets* Short-term financing**

Hedging (or Maturity Matching) Approach : 

By RAHEEM BAKSH NDIIT NEW DELHI Hedging (or Maturity Matching) Approach * Less amount financed spontaneously by payables and accruals. ** In addition to spontaneous financing (payables and accruals). Long-term financing Fixed assets Short-term financing** Current assets* TIME AMOUNT

Risks vs. Costs Trade-Off (Conservative Approach) : 

By RAHEEM BAKSH NDIIT NEW DELHI Risks vs. Costs Trade-Off (Conservative Approach) Long-Term Financing Benefits Less worry in refinancing short-term obligations Less uncertainty regarding future interest costs Long-Term Financing Risks Borrowing more than what is necessary Borrowing at a higher overall cost (usually) Result Manager accepts less expected profits in exchange for taking less risk.

Risks vs. Costs Trade-Off (Conservative Approach : 

By RAHEEM BAKSH NDIIT NEW DELHI Risks vs. Costs Trade-Off (Conservative Approach Firm can reduce risks associated with short-term borrowing by using a larger proportion of long-term financing. Long-term financing Fixed assets Current assets TIME AMOUNT Short-term financing

Comparison with an Aggressive Approach : 

By RAHEEM BAKSH NDIIT NEW DELHI Comparison with an Aggressive Approach Short-Term Financing Benefits Financing long-term needs with a lower interest cost than short-term debt Borrowing only what is necessary Short-Term Financing Risks Refinancing short-term obligations in the future Uncertain future interest costs Result Manager accepts greater expected profits in exchange for taking greater risk.

Risks vs. Costs Trade-Off (Aggressive Approach) : 

By RAHEEM BAKSH NDIIT NEW DELHI Risks vs. Costs Trade-Off (Aggressive Approach) Firm increases risks associated with short-term borrowing by using a larger proportion of short-term financing. TIME DOLLAR AMOUNT Long-term financing Fixed assets Short-term financing Current assets

Summary of Short- vs. Long-Term Financing : 

By RAHEEM BAKSH NDIIT NEW DELHI Summary of Short- vs. Long-Term Financing Financing Maturity Asset Maturity SHORT-TERM LONG-TERM Low Risk-Profitability Moderate Risk-Profitability Moderate Risk-Profitability High Risk-Profitability SHORT-TERM (Temporary) LONG-TERM (Permanent)

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By RAHEEM BAKSH NDIIT NEW DELHI

THANKS AGAIN : 

THANKS AGAIN By RAHEEM BAKSH NDIIT NEW DELHI

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