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Working Capital Finance Guide

This document discusses working capital finance. It defines working capital as current assets and current liabilities, noting that net working capital is the difference between the two. The document states that working capital financing is crucial for day-to-day business operations and can come from various sources like trade credit, cash credit, loans, and bill discounting. It provides definitions of gross working capital, net working capital, permanent working capital, and temporary working capital. Types of working capital discussed include trade credit, cash credit, and working capital loans.

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64 views6 pages

Working Capital Finance Guide

This document discusses working capital finance. It defines working capital as current assets and current liabilities, noting that net working capital is the difference between the two. The document states that working capital financing is crucial for day-to-day business operations and can come from various sources like trade credit, cash credit, loans, and bill discounting. It provides definitions of gross working capital, net working capital, permanent working capital, and temporary working capital. Types of working capital discussed include trade credit, cash credit, and working capital loans.

Uploaded by

JUI SHINDE
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
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Download as PPTX, PDF, TXT or read online on Scribd
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B11 – SURAJ MUDALIYAR

B37 – JUI SHINDE


B48 – RASHI TRIPATHI
B53 – JANHAVI WAYANGANKAR
FINANCIAL MANAGEMENT – III
Topic : WORKING CAPITAL FINANCE
Introduction :-

 Working capital financing is done by various modes such as trade credit , cash
credit /bank overdraft , working capital loan , purchase of bills , bank
guarantee, letter of credit , factoring , commercial paper , inter corporate
deposits, etc.
 Arrangements of working capital financing forms a major part of day to day
activities of a finance manager.
 It is a very crucial activity and requires continuous attention because working
capital is the money which keeps the day to day business operation smooth .
 Insufficient working capital may result into non-payment of certain dues on
time. Inappropriate mode of financing would result in loss of interest which
directly hits the profits of the firm .
Definition of Working Capital :-

 Working capital refers to Current Assets and Current Liabilities .


 Promoters have to make sure that adequate working capital to reach break-even
point and step up capacity utilization is available.
 It is essential that such estimates are available and resources are tied up to meet
the working capital requirements of the project.
 Net working capital is the difference between current assets and current liabilities
and is a measure of the company’s liquidity.
 In case of smaller companies , almost 63% of total net assets were devoted to
current assets.
 In case of medium companies 55% of total assets were devoted to current assets.
 In case of large companies 40% of total assets were devoted to current assets, and
current liabilities constituted almost 40% of total liabilities.
Types of Working Capital :-

1. Trade Credit
2. Cash Credit / Bank Overdraft
3. Working Capital Loans
4. Purchase / Discount of bills
Concept of working capital :

1. Gross working Capital : It refers to the firm’s investment in total current or circulating assets.
2. Net Working Capital : The term “Net Working Capital” has been defined in two different ways :
a] It is the excess of current assets over current liabilities . This is , as a matter of fact , the
most commonly accepted definition . Some people define it as only the difference between
current assets and current liabilities. The former seems to be a better definition as compared
to the latter. b] It is that portion of a firm’s current assets which is financed by long-term
funds.
3. Permanent Working Capital : This refers to that minimum amount of investment in all current
assets which is required at all times to carry out minimum level of business activities.
4. Temporary Working Capital : The amount of such working capital keeps on fluctuating from
time to time on the basis of business activities. In other words , it represents additional
current assets required at different times during the operating year.
5. Negative Working Capital : This situation occurs when the current liabilities exceed the current
assets. It is an indication of crisis to the firm.

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