Topic- Liquidity v/s. Profitability Subject- Working Capital Management

1. LIQUIDITY
V S.
Dr. NEERAJ CHITKARA
PROFITABILITY
Dr. Neeraj Chitkara
Assistant Professor
Samalkha Group of Instituions
Email- neer.chitkara@gmail.com

2. FINANCING OF WORKING CAPITAL
 Long Term Financing
Dr. NEERAJ CHITKARA
 Short Term Financing
 Spontaneous Financing

3. APPROACHES REGARDING FINANCING
Dr. NEERAJ CHITKARA
 Heading Approach
 Conservative Approach
 Aggressive Approach

4. Dr. NEERAJ CHITKARA

5. Dr. NEERAJ CHITKARA

6. SHORT-TERM VS. LONG-TERM FINANCING
 Short-Term Financing
Dr. NEERAJ CHITKARA
 Cheap but risky
 Cheap - short-term rates generally lower than long term rates
 Risky – because you are continually entering marketplace to
borrow.
 Borrower will face changing conditions ( ex. Higher interest
rates and tight money)

7. SHORT-TERM VS. LONG-TERM FINANCING
 Long -Term Financing
Dr. NEERAJ CHITKARA
 Safe but expensive
 Safe – you can secure the required capital.
 Expensive – long term rates generally higher than short term
rates.

8. DETERMINANTS OF WORKING CAPITAL
 Nature of Business
 Size of Business
 Growth and Expansion
Dr. NEERAJ CHITKARA
 Production Cycle
 Business fluctuations
 Production policy
 Sale policy
 Availability of raw material
 Availability of credit
 Volume of profit
 Dividend policy
 Efficiency of management
 Price level changes

9. IMPORTANCE OF WORKING CAPITAL
 Maximizing shareholders wealth
 Profit maximization
Dr. NEERAJ CHITKARA
 Behavioral Objectives
 Divergent objectives
 Agency problem
 Ethical issues
 Social responsibilities.

10. WORKING CAPITAL MANAGEMENT
WCM is the process of planning and controlling the
level and mix of the current assets of the firm as
Dr. NEERAJ CHITKARA
well as financing these assets. Specially wcm
requires financial manager to decide that what
quantities of cash , accounts receivables and
inventories etc. the firm must hold at any point of
time.
The goal of WCM is to manage the current assets
and current liabilities of the firm in such a way that
satisfactory level of working capital is maintained.