working capital

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UNIT-4 : 

UNIT-4 WORKING CAPITAL

Concept of working capital : 

Concept of working capital working capital or circulating capital indicates circular flow of funds is the day-to-day or routine activates of business. In broad sense, the term" working capital ” is used to denotes the total current assets.

Types of working capital : 

Types of working capital 1.On the basis of concept (a) gross working capital (b) Net working capital 2.On the basis of Requirement (a) permanent (b) Variable exp- seasonal

OPERATING CYCLE : 

OPERATING CYCLE Accounting receivable finished Goods WIP RAW material cash

IMPORATNCE OF W. C : 

IMPORATNCE OF W. C Cash discount Liquidity and solvency Expansion facilitated Profitability increased

SOURCES OF W. C : 

SOURCES OF W. C LONG TERM- 1. sale of share 2. issue of debenture 3. retained profit 4. long term loan

SHORT TERM SOURCES : 

SHORT TERM SOURCES Internal – depreciation fund, provision for taxation, accrued expenses External- trade credit, customer advances ,loan from directors

Example- : 

Example- Compute working capital – Expected level of production 22000 t raw material inventory 4 weeks processing period 2 weeks permanent material in process 200 t finished goods 6 weeks credit allowed to customers 8 weeks expected ratio of material to sale 72% wages and overheads 22% selling price per ton Rs 3000