Presentation Transcript
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