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• 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
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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
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Expert’s Views
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Gross WC
Net
WC
Balancesheet
Concept
Total Current Asssets
Current Assets - Current Liabilities
Positive NWC = CA > CLNegative NWC = CA < CL
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Accounts Payable
Cash
RawMaterials W I P
Finished Goods
AccountsReceivable
Sales
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Payable Deferral period
Inventory conversionperiod
Net Operating Cycle
Gross Operating cycle
Pay forResourcespurchases
Receive Cash
Purchaseresources
SellProductOn credit
Receivable Conversion period
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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
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Fixed Assets
Permanent Current Assets
Total Assets
Fluctuating Current Assets
Time
Rs
Short-termDebt
Long-termDebt +EquityCapital
Amount of WC
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(Un)Balanced Working Capital
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Bal Balanced Working Capital
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Bal Balanced Working Capital
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Nature of Business
Availability of Credit from suppliers
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Dimension I
Profitability,
Risk, & Liquidity
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Long-term Financing
Short-term Financing
Spontaneous Financing
Matching Approach
Conservative Approach
Aggressive Approach
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Risk
Flexibility
Cost
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