SlideShare une entreprise Scribd logo
1  sur  12
Télécharger pour lire hors ligne
CLASSIFICATION OF
WORKING CAPITAL



        PRESENTED BY:
             ALEENA CHACKOCHAN
              MACFAST
WORKING CAPITAL

          Working Capital refers to that part of the firm’s
capital, which is required for financing short-term or
current assets such as cash marketable securities, debtors
and inventories. Funds thus, invested in current assets
keep revolving fast and are constantly converted into cash
and this cash flow out again in exchange for other current
assets. Working Capital is also known as revolving or
circulating capital or short-term capital.
TYPES OF WORKING CAPITAL

                 WORKING CAPITAL


      BASIS OF                  BASIS OF
      CONCEPT                    TIME

  Gross     Net          Permanent     Temporary
 Working   Working         / Fixed      / Variable
 Capital   Capital           WC            WC

                                Seasonal      Special
                                  WC           WC
GROSS WORKING CAPITAL
       Gross working capital require that a firm have
adequate investment in current assets and proper
management of theses asset.
       It should be neither excessive nor inadequate asset.
If there are surplus funds they should be immediately
invested, and if       the funds become low and the
requirement is greater the financial manager should be
able to get the required finance so that the commitments of
the firm can be made short notice.
NET WORKING CAPITAL
   It is the difference between current asset and current
    liabilities. When current asset are higher than current
    liability NWC will be positive, but if current liabilities
    exceed current assets NWC.
   The current asset should as a rule maintain a ratio of 2:1
    with current liabilities.
   NWC explain the management of financing of working
    capital through the financing of long-term and short term
    funds.
      NWC= Current Assets – Current Liabilities
    CA= cash + marketable securities + accounting
    receivables + notes and Bills Receivables + Inventories
    CL = Accounts Payable + Notes and Bills + Outstanding
     Expenses + Short Term Loans.
DIFFERENCE BETWEEN NET WORKING
    CAPITAL AND GROSS WORKING CAPITAL
         Net Working Capital                             Gross Working Capital

1. NWC is the concept of qualitative             1. GWC is the concept of quantitative
   nature.                                          nature.
2. It is indicating the firm’s ability to meet   2. It is pointing out the total amount
   its operating expenses and current               available for financing the current
   liability.                                       assets.
3. It expressed as current asset minus
   current liability.                            3. It indicating the total sum of current
4. It is concept very popular in accounting         assets.
   system.                                       4. It is a concept very popular in financial
5. Net concept suitable for sole trader             management.
   and partnership firms.                        5. Gross concept suitable for companies.
6. It is very useful to find out true the
   financial position of a company.              6. It cannot reveal the true financial
7. Increase in bank loan cannot increase            position of a company.
   working capital. Retained profits, sale of    7. Every increase in borrowing will
   fixed assets will increase net working           increase the gross working capital.
   capital.                                         Under net concept, no change in
PERMANENT OR REGULAR
         WORKING CAPITAL
         Permanent working capital is the minimum level
of current assets which is continuously required by a firm
for carrying out its business activities and that cannot be
converted into cash in normal course of business.
        Permanent working capital is either constant or it
increase with the size of the business or its scale of
operations.

Charactertics:
  Continue to exist for a longer period of time is the
   business activities.
  Constantly changes in the business from one asset to
   another.
  Grows the size or volume of business operation.
TEMPORARY OR VARIABLE
         WORKING CAPITAL
       Any amount over and above the permanent level of
working capital is temporary working capital. It keeps on
fluctuating from time to time as per the changes in
production and sales activities.

Charactertics:
  It is an extra working capital needed to changing
   production and sales activities.
  It is created to meet liquidity requirements.

  It fluctuates according to the level of operations.
   Temporary working capital is fluctuating during the
    operating period.
   It is needed for shorter period.


Two types of temporary working capital

              • Seasonal working capital.

               • Specific working capital.
SEASONAL WORKING CAPITAL

          The capital required to meet the seasonal
demands of the enterprise is called seasonal working
capital.
          For example, a manufacture of woolen textiles,
refrigerators or coolers may need extra funds to carry on
production and to accumulate stock before the sales
operations.
          Seasonal working capital being of short-term
nature, it has to be financed from short-term sources like
bank loan etc.
SPECIFIC WORKING CAPITAL
          Specific working capital is that part of working
capital which is required to meet unforeseen contingencies
like slump, strike, flood, war etc.
          Additional working capital is to be arranged to
meet special exigencies such as launching of extensive
marketing campaign, purchase of goods for stock in view
of future increase in price etc.
THANK YOU

Contenu connexe

Tendances

Tendances (20)

Working capital finance
Working capital financeWorking capital finance
Working capital finance
 
Dividend policy ppt
Dividend policy  pptDividend policy  ppt
Dividend policy ppt
 
Funds flow statement
Funds flow statement Funds flow statement
Funds flow statement
 
Regulatory framework for financial services in INDIA
Regulatory framework for financial services in INDIARegulatory framework for financial services in INDIA
Regulatory framework for financial services in INDIA
 
Financial Instruments
Financial InstrumentsFinancial Instruments
Financial Instruments
 
Working capital management
Working capital managementWorking capital management
Working capital management
 
Working capital finance
Working capital financeWorking capital finance
Working capital finance
 
Term loan
Term loanTerm loan
Term loan
 
Debentures
DebenturesDebentures
Debentures
 
Working capital
Working capitalWorking capital
Working capital
 
Mutual fund
Mutual fundMutual fund
Mutual fund
 
Dividend policy
Dividend policyDividend policy
Dividend policy
 
Determinants of working capital
Determinants of working capitalDeterminants of working capital
Determinants of working capital
 
Financial system
Financial system  Financial system
Financial system
 
FINANCIAL MARKET
FINANCIAL MARKETFINANCIAL MARKET
FINANCIAL MARKET
 
Portfolio revision and evaluation
Portfolio revision and evaluationPortfolio revision and evaluation
Portfolio revision and evaluation
 
Working capital ppt
Working capital pptWorking capital ppt
Working capital ppt
 
sources of short term finance.
sources of short  term finance.sources of short  term finance.
sources of short term finance.
 
Capital Structure Theories
Capital Structure TheoriesCapital Structure Theories
Capital Structure Theories
 
Dividend Decisions
Dividend DecisionsDividend Decisions
Dividend Decisions
 

Similaire à Classification of working capital

Financial management unit 5
Financial management unit 5Financial management unit 5
Financial management unit 5Sheik fareeth
 
Working Capital – An Effective Business Management Tool
Working Capital – An Effective Business Management ToolWorking Capital – An Effective Business Management Tool
Working Capital – An Effective Business Management Toolinventionjournals
 
Unit 4 Introduction to working capital_JNTUA MBA Syllabus
Unit 4  Introduction to working capital_JNTUA MBA SyllabusUnit 4  Introduction to working capital_JNTUA MBA Syllabus
Unit 4 Introduction to working capital_JNTUA MBA SyllabusShaik Mohammad Imran
 
working capital management
working capital managementworking capital management
working capital managementNavneetyadav711
 
Financial management
Financial managementFinancial management
Financial managementArunsarjunan
 
Working capital management
Working capital managementWorking capital management
Working capital managementVarna Babu
 
Management of Working Capital- Britannia Industries Ltd.
Management of Working Capital- Britannia Industries Ltd.Management of Working Capital- Britannia Industries Ltd.
Management of Working Capital- Britannia Industries Ltd.Nikita Jangid
 
working capital management 1
working capital management 1working capital management 1
working capital management 1PaRth PaTel
 
Topic 1 nature elements of working capital
Topic   1 nature   elements of working capitalTopic   1 nature   elements of working capital
Topic 1 nature elements of working capitalRAJKAMAL282
 
Financial management working capital
Financial management working capitalFinancial management working capital
Financial management working capitalAbhishek Harkhani
 
Working capital management ppt @ bec doms bagalkot mba
Working capital management ppt @ bec doms bagalkot mbaWorking capital management ppt @ bec doms bagalkot mba
Working capital management ppt @ bec doms bagalkot mbaBabasab Patil
 
Working Capital Management
Working Capital ManagementWorking Capital Management
Working Capital ManagementSameer GAHLOT
 
ITFT Working capital management
ITFT Working capital managementITFT Working capital management
ITFT Working capital managementdevinder14
 
Working capital management
Working capital managementWorking capital management
Working capital managementNITISH SADOTRA
 
A project on working capital management in bhel
A project on working capital management in bhelA project on working capital management in bhel
A project on working capital management in bhelProjects Kart
 

Similaire à Classification of working capital (20)

WCM
WCMWCM
WCM
 
Wcm
Wcm Wcm
Wcm
 
Financial management unit 5
Financial management unit 5Financial management unit 5
Financial management unit 5
 
Working Capital – An Effective Business Management Tool
Working Capital – An Effective Business Management ToolWorking Capital – An Effective Business Management Tool
Working Capital – An Effective Business Management Tool
 
Unit 4 Introduction to working capital_JNTUA MBA Syllabus
Unit 4  Introduction to working capital_JNTUA MBA SyllabusUnit 4  Introduction to working capital_JNTUA MBA Syllabus
Unit 4 Introduction to working capital_JNTUA MBA Syllabus
 
working capital management
working capital managementworking capital management
working capital management
 
Financial management
Financial managementFinancial management
Financial management
 
Working capital management
Working capital managementWorking capital management
Working capital management
 
Management of Working Capital- Britannia Industries Ltd.
Management of Working Capital- Britannia Industries Ltd.Management of Working Capital- Britannia Industries Ltd.
Management of Working Capital- Britannia Industries Ltd.
 
Working capital
Working capitalWorking capital
Working capital
 
working capital management 1
working capital management 1working capital management 1
working capital management 1
 
Topic 1 nature elements of working capital
Topic   1 nature   elements of working capitalTopic   1 nature   elements of working capital
Topic 1 nature elements of working capital
 
Financial management working capital
Financial management working capitalFinancial management working capital
Financial management working capital
 
Working capital management ppt @ bec doms bagalkot mba
Working capital management ppt @ bec doms bagalkot mbaWorking capital management ppt @ bec doms bagalkot mba
Working capital management ppt @ bec doms bagalkot mba
 
Detail wc
Detail wcDetail wc
Detail wc
 
Working Capital Management
Working Capital ManagementWorking Capital Management
Working Capital Management
 
WORKING CAPITAL-2
WORKING CAPITAL-2WORKING CAPITAL-2
WORKING CAPITAL-2
 
ITFT Working capital management
ITFT Working capital managementITFT Working capital management
ITFT Working capital management
 
Working capital management
Working capital managementWorking capital management
Working capital management
 
A project on working capital management in bhel
A project on working capital management in bhelA project on working capital management in bhel
A project on working capital management in bhel
 

Classification of working capital

  • 1. CLASSIFICATION OF WORKING CAPITAL PRESENTED BY: ALEENA CHACKOCHAN MACFAST
  • 2. WORKING CAPITAL Working Capital refers to that part of the firm’s capital, which is required for financing short-term or current assets such as cash marketable securities, debtors and inventories. Funds thus, invested in current assets keep revolving fast and are constantly converted into cash and this cash flow out again in exchange for other current assets. Working Capital is also known as revolving or circulating capital or short-term capital.
  • 3. TYPES OF WORKING CAPITAL WORKING CAPITAL BASIS OF BASIS OF CONCEPT TIME Gross Net Permanent Temporary Working Working / Fixed / Variable Capital Capital WC WC Seasonal Special WC WC
  • 4. GROSS WORKING CAPITAL Gross working capital require that a firm have adequate investment in current assets and proper management of theses asset. It should be neither excessive nor inadequate asset. If there are surplus funds they should be immediately invested, and if the funds become low and the requirement is greater the financial manager should be able to get the required finance so that the commitments of the firm can be made short notice.
  • 5. NET WORKING CAPITAL  It is the difference between current asset and current liabilities. When current asset are higher than current liability NWC will be positive, but if current liabilities exceed current assets NWC.  The current asset should as a rule maintain a ratio of 2:1 with current liabilities.  NWC explain the management of financing of working capital through the financing of long-term and short term funds.  NWC= Current Assets – Current Liabilities  CA= cash + marketable securities + accounting receivables + notes and Bills Receivables + Inventories  CL = Accounts Payable + Notes and Bills + Outstanding Expenses + Short Term Loans.
  • 6. DIFFERENCE BETWEEN NET WORKING CAPITAL AND GROSS WORKING CAPITAL Net Working Capital Gross Working Capital 1. NWC is the concept of qualitative 1. GWC is the concept of quantitative nature. nature. 2. It is indicating the firm’s ability to meet 2. It is pointing out the total amount its operating expenses and current available for financing the current liability. assets. 3. It expressed as current asset minus current liability. 3. It indicating the total sum of current 4. It is concept very popular in accounting assets. system. 4. It is a concept very popular in financial 5. Net concept suitable for sole trader management. and partnership firms. 5. Gross concept suitable for companies. 6. It is very useful to find out true the financial position of a company. 6. It cannot reveal the true financial 7. Increase in bank loan cannot increase position of a company. working capital. Retained profits, sale of 7. Every increase in borrowing will fixed assets will increase net working increase the gross working capital. capital. Under net concept, no change in
  • 7. PERMANENT OR REGULAR WORKING CAPITAL Permanent working capital is the minimum level of current assets which is continuously required by a firm for carrying out its business activities and that cannot be converted into cash in normal course of business. Permanent working capital is either constant or it increase with the size of the business or its scale of operations. Charactertics:  Continue to exist for a longer period of time is the business activities.  Constantly changes in the business from one asset to another.  Grows the size or volume of business operation.
  • 8. TEMPORARY OR VARIABLE WORKING CAPITAL Any amount over and above the permanent level of working capital is temporary working capital. It keeps on fluctuating from time to time as per the changes in production and sales activities. Charactertics:  It is an extra working capital needed to changing production and sales activities.  It is created to meet liquidity requirements.  It fluctuates according to the level of operations.
  • 9. Temporary working capital is fluctuating during the operating period.  It is needed for shorter period. Two types of temporary working capital • Seasonal working capital. • Specific working capital.
  • 10. SEASONAL WORKING CAPITAL The capital required to meet the seasonal demands of the enterprise is called seasonal working capital. For example, a manufacture of woolen textiles, refrigerators or coolers may need extra funds to carry on production and to accumulate stock before the sales operations. Seasonal working capital being of short-term nature, it has to be financed from short-term sources like bank loan etc.
  • 11. SPECIFIC WORKING CAPITAL Specific working capital is that part of working capital which is required to meet unforeseen contingencies like slump, strike, flood, war etc. Additional working capital is to be arranged to meet special exigencies such as launching of extensive marketing campaign, purchase of goods for stock in view of future increase in price etc.