PRESENTED BYA.F. MD. ANWARUL AZIM

SENIOR PRINCIPAL OFFICERCORPORATE INVESTMENT DIVISION

HEAD OFFICE

WORKING CAPITAL ASSESSMENT

• Working Capital is the measure of cash and liquid assets available to fund a company's day-to-day operations.

• The capital of a business that is used in its day-to-day trading/production operations, calculated as the Current Assets minus the Current Liabilities.

• FINALLY : SHORT TERM FUNDS REQUIRED TO ACQUIRE CURRENT ASSETS TO ENABLE THE BUSINESS/INDUSTRY TO OPERATE AT THE EXPECTED LEVEL.

WHAT IS WORKING CAPITAL

SOURCES OF WORKING CAPITALSources of finance for Working Capital include Share, Debenture, bank loans, retained earnings, credit from suppliers, Inter Company accounts, Commercial Papers, factoring, long-term loans from financial institutions, or proceeds from sale of assets.

• Nature of Business• Length of Operating Cycle• Operating Cycle Fluctuation• Scale of Operation &Operating

Efficiency• Seasonal Factors• Technology and Production Cycle• Credit Allowed & Credit Avail• Availability of Raw Materials• Level of Competition• Inflation• Growth Prospects

FACTORS AFFECTING THE WORKING CAPITAL

• Current Asset & Current Liability Method• Tied-up Period & Operation Cycle Method • Annual Turnover Method• Tied-up Period & Operation Cycle

Method– Capacity utilization is needed to assess WC– Capacity utilization varies from industry to industry– Spinning Mills run at higher capacity (90% &

above)– Appropriate capacity utilization to be considered– Tied-up periods for various activities are needed to

assess WC– Appropriate tied-up period for various activities to

be considered

METHODS OF WORKING CAPITAL ASSESSMENT

Time taken between Cash outlay & Cash realization through sale of

finished goods & realization of receivables is known as length of Operating Cycle

OPERATING CYCLE

TIED-UP PERIODS & OPERATION CYCLE

Item

Tied-up Period (days)Spinnin

g(export)

Spinning

(local)

RMG Jute(export)

Feed Mill

Rice Mill

LC / BBLC 60 60 30 - 30 -Imported Material

90 90 30 - 30 -

Local Material 30 30 60 270 15 45Work in Process

5 5 30 5 2 3

Finished Goods 15 7 10 15 7 15Receivables 120 15 20 15 30 20Store & Spares 60 60 - 60 - 60

WORKING CAPITAL ANALYSIS[EXPORT ORIENTED RMG]

Item Tied-up

(day)

Capacity Utilization (%)

100 80 70

Raw Material (LC) 30 56.2 45.0 39.3Raw Material (Inventory) 30 56.2 45.0 39.3Accessories (Inventory) 60 42.1 33.7 29.5Working in Process 30 125.7 100.6 88.0Finished Goods 10 41.9 33.5 29.3Receivables 20 83.8 67.0 58.7Total 180 405.9 324.8 284.1Less Clients equity (0%) 0 0 0Net Requirement 406 325 284

Assumptions:– Knit Garments (30-line): 36,000 pcs/day– Yarn Required (2.5 kg/dz): 7,500 kg– Price of Yarn: US$ 3.2 per kg– Yarn Cost (7500*3.2*78): Tk. 1.872 million/day– Accessories (US$ 3/dz): Tk. 0.702 million/day– Exchange Rate: Tk. 78/US$– Wages & Salaries: Tk. 15 million/month– Fuel & Gas: Tk. 2.00 million/month– Knitting Charge (Tk. 15/kg) Tk. 0.112 million/day– Dyeing Charge (US$ 1.6/kg) Tk. 0.936 million/day– WIP= (56.2+21.06+15+2+(0.112+0.936)*30 Tk. 125.7 million/day

WORKING CAPITAL ANALYSIS[EXPORT ORIENTED RMG]

The assessment requires to extract actual and authenticated data to calculate WC. Remember, to assess the real requirement of the project, you will require to reach into the heart of the business. Consider yourself wearing the shoes of the key person of the business.

Avg. Capacity Utilization of Different Industries

Industry Standard Utilization

%

Industry Standard Utilization

%Spinning Mill 90 & above Flour Mill 40 – 70Textile Weaving 70 – 80 Auto Rice Mill 40 – 70Textile Knitting 70 - 80 Steel Mill 40 – 70Composite Knit 70 – 80 Cement Industry 60 – 70Dyeing & Finishing

60 – 70 Jute Mill 70 – 80

Garments Industry

70 – 80 Paper Mill 70 – 80

Cold Storage 50 – 60 own Ceramic Industry

78 – 80

Feed Mill 60 - 70 Pharmaceuticals 40 - 60

• Findout the production capacity & process• Findout the bottleneck of the production

line• List the raw materials required and

sources• Availability of raw materials &

procurement process• Production

Keep in mind while processing a Proposal for Working Capital

Investment