working capital assessment
DESCRIPTION
TRANSCRIPT
![Page 1: Working Capital Assessment](https://reader035.vdocuments.us/reader035/viewer/2022081413/54681ccdaf795985308b4adf/html5/thumbnails/1.jpg)
WORKING CAPITAL
ASSESSMENT- Umang Soni
- WRO0276669
![Page 2: Working Capital Assessment](https://reader035.vdocuments.us/reader035/viewer/2022081413/54681ccdaf795985308b4adf/html5/thumbnails/2.jpg)
WHAT IS WORKING CAPITAL ?
Funds required to fulfill short term obligations & smoothly conduct
routine business operations.
Gross WC Net WC
![Page 3: Working Capital Assessment](https://reader035.vdocuments.us/reader035/viewer/2022081413/54681ccdaf795985308b4adf/html5/thumbnails/3.jpg)
Assets which are normally converted into cash during the operating cycle of the entity. Cash & Bank balances Inventory Receivables Advances to suppliers/others Marketable Securities Other Current assets
WHAT ARE CURRENT ASSETS ?
![Page 4: Working Capital Assessment](https://reader035.vdocuments.us/reader035/viewer/2022081413/54681ccdaf795985308b4adf/html5/thumbnails/4.jpg)
Raw Materials (RM/RM Consumption)Add: Work-In-Process (WIP/COP)Add: Finished Goods (FG/COS)Add: Receivables (Debtors/Credit sales)Less: Creditors (Creditors/Purchases)Operating Cycle
It begins with acquisition of raw materials and ends with collection of receivables.
OPERATING CYCLE
![Page 5: Working Capital Assessment](https://reader035.vdocuments.us/reader035/viewer/2022081413/54681ccdaf795985308b4adf/html5/thumbnails/5.jpg)
Nature of Business & Operations
Production Policy
Market conditions
Conditions of supply of RM / stores &
spares, etc.
Level of activity & Operating Cycle
FACTORS INFLUENCING WORKING CAPITAL REQUIREMENT
![Page 6: Working Capital Assessment](https://reader035.vdocuments.us/reader035/viewer/2022081413/54681ccdaf795985308b4adf/html5/thumbnails/6.jpg)
A) Fund Based
Cash Credit / Overdraft Packing Credit
Demand Loan Bill Finance
B) Non Fund Based
Letter of Credit Bank Guarantee
WORKING CAPITAL FINANCE
![Page 7: Working Capital Assessment](https://reader035.vdocuments.us/reader035/viewer/2022081413/54681ccdaf795985308b4adf/html5/thumbnails/7.jpg)
Operating Cycle Method
Drawing Power Method
Turnover Method
MPBF Method
Cash Budget Method
WORKING CAPITAL ASSESSMENT METHODS
![Page 8: Working Capital Assessment](https://reader035.vdocuments.us/reader035/viewer/2022081413/54681ccdaf795985308b4adf/html5/thumbnails/8.jpg)
A. Length of Operating Cycle
a. Procurement of Raw Materialb. Conversion / Process timec. Average Finished Goods Holding Periodd. Average Collection Periode. Average Supplier’s Credit Periodf. Operating Cycle (a + b + c + d - e)g. No. of Operating Cycles in a year(365 days / f)
OPERATING CYCLE METHOD
![Page 9: Working Capital Assessment](https://reader035.vdocuments.us/reader035/viewer/2022081413/54681ccdaf795985308b4adf/html5/thumbnails/9.jpg)
Working capital requirement
Operating Expenses p.a.= --------------------------------------------- No. of Operating Cycles in a year
……OPERATING CYCLE METHOD
![Page 10: Working Capital Assessment](https://reader035.vdocuments.us/reader035/viewer/2022081413/54681ccdaf795985308b4adf/html5/thumbnails/10.jpg)
Particulars Security Margin DPPaid Raw Material(RM-Creditors)
(a) (e) [a * (1-e)]
Semi Finished goods
(b) (f) [b * (1-f)]
Finished goods (c) (g) [c * (1-g)]Book debts (d) (h) [d * (1-h)]
Total
DRAWING POWER (DP) METHOD
![Page 11: Working Capital Assessment](https://reader035.vdocuments.us/reader035/viewer/2022081413/54681ccdaf795985308b4adf/html5/thumbnails/11.jpg)
A Sales TurnoverB 25% of Sales TurnoverC 5% of Sales Turnover projected as MarginD Actual NWC existing as per Last Financial
StatementE B – CF B – DG MPBF (E or F whichever is less)H Additional margin to be brought in (C-D)
TURNOVER METHOD(originally suggested by NAYAK Committee)
![Page 12: Working Capital Assessment](https://reader035.vdocuments.us/reader035/viewer/2022081413/54681ccdaf795985308b4adf/html5/thumbnails/12.jpg)
A Current AssetsB Current Liabilities other than Bank
BorrowingsC Working Capital Gap (A - B)D Minimum Stipulated NWC (25% of CA
excluding export receivables)E Actual / Projected NWCF C – DG C – EH MPBF (F or G whichever is less)
MPBF METHOD(TANDON’S II Method of Lending)
![Page 13: Working Capital Assessment](https://reader035.vdocuments.us/reader035/viewer/2022081413/54681ccdaf795985308b4adf/html5/thumbnails/13.jpg)
CASH BUDGET METHOD
Forecasted Cash Flow Statement showing
estimates of cash receipts, cash payments
and net cash balance over the project term.
Peak deficit is financed.
Banks & Financial Institutions supervise the
end use of the funds sanctioned through
actual Cash Flow.
![Page 14: Working Capital Assessment](https://reader035.vdocuments.us/reader035/viewer/2022081413/54681ccdaf795985308b4adf/html5/thumbnails/14.jpg)
For genuine trade & manufacturing transaction
Various Types: Discounting / Purchase of Bills of
Exchange Cheque Purchase Advance against delivery Advance against acceptance Packing Credit
BILL FINANCE
![Page 15: Working Capital Assessment](https://reader035.vdocuments.us/reader035/viewer/2022081413/54681ccdaf795985308b4adf/html5/thumbnails/15.jpg)
Letter of Credit:
Bills sent for Collection:
Bank Guarantee: Performance / FinancialInland / Foreign
NON FUND BASED LIMITS
![Page 16: Working Capital Assessment](https://reader035.vdocuments.us/reader035/viewer/2022081413/54681ccdaf795985308b4adf/html5/thumbnails/16.jpg)
For Existing Units: Intra-Firm Comparison (i.e. Trend Analysis) Inter-Firm Comparison Evidences (Orders in Hand, Orders in
Pipeline)
For New Units:Pure Play Technique
Note: Higher projections should be justified.
JUSTIFICATION OF THE PERFORMANCE PROJECTION
![Page 17: Working Capital Assessment](https://reader035.vdocuments.us/reader035/viewer/2022081413/54681ccdaf795985308b4adf/html5/thumbnails/17.jpg)