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    Working Capital Introduction

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    rabadiya
    Working capital refers to the capital required for financing short-term operational needs of a business like payrolls, inventories, and short-term liabilities. It is the difference between current assets and current liabilities. Working capital can be classified as gross or net working capital and permanent or temporary working capital. Sources of working capital include long-term sources like equity shares, debentures, retained earnings and term loans as well as short-term sources like bank loans, trade credit, and public deposits. Factors like nature of business, production cycle, and credit policy impact working capital needs.

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    Working Capital Introduction

    Uploaded by

    rabadiya
    32 views17 pages
    Working capital refers to the capital required for financing short-term operational needs of a business like payrolls, inventories, and short-term liabilities. It is the difference between current assets and current liabilities. Working capital can be classified as gross or net working capital and permanent or temporary working capital. Sources of working capital include long-term sources like equity shares, debentures, retained earnings and term loans as well as short-term sources like bank loans, trade credit, and public deposits. Factors like nature of business, production cycle, and credit policy impact working capital needs.

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    Working capital refers to the capital required for financing short-term operational needs of a business like payrolls, inventories, and short-term liabilities. It is the difference between current assets and current liabilities. Working capital can be classified as gross or net working capital and permanent or temporary working capital. Sources of working capital include long-term sources like equity shares, debentures, retained earnings and term loans as well as short-term sources like bank loans, trade credit, and public deposits. Factors like nature of business, production cycle, and credit policy impact working capital needs.

    Copyright:

    Attribution Non-Commercial (BY-NC)
    Download as PPTX, PDF, TXT or read online from Scribd
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    32 views17 pages

    Working Capital Introduction

    Uploaded by

    rabadiya
    Working capital refers to the capital required for financing short-term operational needs of a business like payrolls, inventories, and short-term liabilities. It is the difference between current assets and current liabilities. Working capital can be classified as gross or net working capital and permanent or temporary working capital. Sources of working capital include long-term sources like equity shares, debentures, retained earnings and term loans as well as short-term sources like bank loans, trade credit, and public deposits. Factors like nature of business, production cycle, and credit policy impact working capital needs.

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    Meaning of working capital (WC)

    • Working capital typically means the firm’s


    holding of current or short-term assets such as
    cash, receivables, inventory and marketable
    securities.
    • Funds required for short term purposes or day
    to day expenses are working capital. WC refers
    to part of firm’s capital reqd. for financing short
    term or current assets also known as revolving
    or short term capital or circulating capital.
    Definition of Working Capital
    • Working capital is description of that capital
    which is not fixed but more common use of
    the working capital is to consider it as a
    difference between the book value of current
    assets &current liabilities
    FACTORS DETERMINING
    WORKING CAPITAL
    1.     Nature & volume of business
    2.   length of Manufacturing
    3.    Business fluctuation
    4.     Production policy
    5.     Credit policy of the business
    6. Availability of credit
    7.    Growth and expansion
    8.    Profit and it’s distribution
    9.   Price level fluctuation
    10. Operating efficiency
    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
    Regular Reserve
    WC WC
    Sources Of Working Capital

    Long term sources Short term sources

     issue of shares
     Issue of debentures Internal External
     Retained profits  Depreciation funds  Trade credit
     Sales of fixed assets Accrued expenses  Credit papers
     Term loans (provision for taxation)  Commercial bank
     Bank credit
     Public deposits
    Sources of working capital
    Long term sources
    Issue of shares
    It is the primary and most important sources of
    regular or permanent working capital. Issuing
    equity shares as it does not create and burden
    on the income of the concern. Nor the concern
    is obliged to refund capital should preferably
    raise permanent working capital.
    Share
    The Companies Act defines a share as “Share
    in the Share Capital of the company, and
    includes stock except where a distinction
    between stock and share is expressed.”Under
    the Companies Act, 1956, a company can issue
    two types of shares.
    (a) Equity Shares
    (b) Preference shares
    Issue of debentures

    It crates a fixed charge on future earnings of


    the company. company is obliged to pay
    interest . management should make wise
    choice in procuring funds by issue of
    debentures.
    Debenture
    • Debentures are Debt Instruments issued for a
    long term by governments and big institutions
    for raising funds. The Debenture has some
    resemblances to bonds but the securitization
    terms and conditions are different for
    Debentures compared to a bond.
    TYPES OF DEBENTURES
    • Secured debentures
    • Redeemable debentures
    • Perpetual debentures
    • Convertible debentures
    • Retained earnings
    Retain earning accumulated profits are a
    permanent sources of regular working capital.
    It is regular and cheapest. It creates not charge
    on future profits of the enterprises
    • Long term debt
    • Company can raise fund from accepting public
    deposits, debts from financial institutution like
    banks, corporations etc. the cost is higher than
    the other financial tools.
    • Other sources sale of idle fixed assets ,
    securities received from employees and
    customers are examples of other sources of
    finance
    • Commercial bank
    A commercial bank constitutes a significant sources
    for short term or temporary working capital . this will
    be in the form of short term loans, cash credit, and
    overdraft and though discounting the bills of
    exchanges.
    • Public deposits
    most of the companies in recent years depends on this
    sources to meet their short term working capital
    requirements ranging fro six month to three years.
    • Various credits
    • trade credit, business credit papers and
    customer credit are other sources of short term
    working capital. Credit from suppliers,
    advances from customers, bills of exchanges,
    promissnotes, etc helps to raise temporary
    working capital
    Shares
    •
    Debentures
    • Debentures are debt securities a document
    which either creates a debt or acknowledges it
    issued under the Company's Common Seal.
    Debentures holders have no right to vote at the
    meetings of the companies.
    Term Loans
    • Long term debt with a maturity of more
    than one year.
    • Obtained from banks & financial
    institutions
    • Mainly to finance company’s capital
    expenditure

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