about wc mgt and its importances

1. Working capital management Presented by, SNEHA MALIAKKAL

2. INTRODUCTION Working capital Management refers to management of the working capital. It includes the management of the level of individual current assets as well as mgt. of total working capital.

3. DEFINITION The working capital mgt. may be defined as “the mgt. of firm’s sources and uses of working capital in order to maximize the wealth of the shareholders. The proper WC mgt. requires both the medium term planning and also the immediate adaptations to changes arising due to fluctuations in operating levels of the firm”.

4. Working Capital Management involves the relationship between a firm's short-term assets and its short-term liabilities. The basic goal is to ensure that a firm is able to continue its operations and that it has sufficient ability to satisfy both maturing short-term debt and upcoming operational expenses.

5. The management of working capital involves managing inventories, accounts receivable, accounts payable and cash There is a trade-off between the risk of having too little working capital and excess working capital.

6. Working capital means the excess of Current Assets over the current Liabilities. ie ; How much amount is required to meet day to day operations. Which assets are convertible into cash or equivalents within a period of one year. It is the life blood and nerve centre of the business. W C = C A -CL

8. Investments

9. Loans and advances

10. Trade debtors

12. Concepts of Working Capital Gross working capital (GWC) GWC refers to the firm’s total investment in current assets. Current assets are the assets which can be converted into cash within an accounting year (or operating cycle) and include cash, short-term securities, debtors, (accounts receivable or book debts) bills receivable and stock (inventory).

13. NET WORKING CAPITAL: The net working capital refers to the difference between current assets and current liabilities. Current liabilities are those claims of outsider, which are expected to mature for payment within an accounting year NWC = The excess of current assets over current liabilities. NWC can be positive or negative. Positive NWC= CA > CL Negative NWC = CA < CL

14. NEED FOR WORKING CAPITAL

15. IMPORTANCE Working capital is required to run the day-to-day business activities Firms differ in their requirements of the working capital. To maximize the wealth of its shareholders, a firm should earn sufficient return from its operations.

16. Earning a steady amount of profit requires successful sales activities. The firm has to invest enough funds in current assets for generating sales. Current assets are needed because sales do not convert into cash instantaneously.

17. Thus importance of working capital can be listed as follows: Solvency of the firm- providing uninterrupted flow of production. Goodwill- to make prompt payments and hence help in creating and maintaining goodwill. Easy loans Cash discounts- reduces cost.

18. Regular supply of raw materials- ensuring continuous production. Regular payments of salaries, wage and other day today commitments- thereby raise the morale of the employees, increases their efficiency, reduces wastage, enhances production and profit. Exploitation of favorable market condition. Ability to face crises Quick and regular return on investment. High morale.