working capital management by raghav malhotra

• Concerned with management of current assets

• Short-term decisions are taken

• Moves around day to day operations

• Unlike fixed assets,time plays a minor role

• Unlike fixed assets,greater flexibilty

• Risk-return trade off

Definition – Working Capital• Working Capital refers to that part of the firm’s capital, which

is required for financing short-term or current assets

Current Assets

Cash

Debtors

Inventories

Marketable Securities

Expert’s Views

Gross WC

Net

WC

Balancesheet

Concept

Total Current Asssets

Current Assets - Current Liabilities

Positive NWC = CA > CLNegative NWC = CA < CL

Accounts Payable

Cash

RawMaterials W I P

Finished Goods

AccountsReceivable

Sales

Payable Deferral period

Inventory conversionperiod

Net Operating Cycle

Gross Operating cycle

Pay forResourcespurchases

Receive Cash

Purchaseresources

SellProductOn credit

Receivable Conversion period

WORKING CAPITAL

BASIS OF

CONCEPT

BASIS OF

TIME

Gross

Working

Capital

Net

Working

Capital

Permanent

/ Fixed

WC

Temporary

/ Variable

WC

Regular

WC

Reserve

WC

Special

WC

Seasonal

WC

Fixed Assets

Permanent Current Assets

Total Assets

Fluctuating Current Assets

Time

Rs

Short-termDebt

Long-termDebt +EquityCapital

Amount of WC

(Un)Balanced Working Capital

Bal Balanced Working Capital

Bal Balanced Working Capital

Nature of Business

Availability of Credit from suppliers

Dimension I

Profitability,

Risk, & Liquidity

Long-term Financing

Short-term Financing

Spontaneous Financing

Matching Approach

Conservative Approach

Aggressive Approach

Risk

Flexibility

Cost