Working Capital Calculation

May 19th, 2015
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Aberystwyth University
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What are Working Capital Sources? Own funds Bank borrowings Sundry Creditors Advances from customers Deposits due in a year Other current liabilities

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WORKING CAPITALASSESSMENTWhat is Working Capital ?Funds required to acquirecurrent assets to enablebusiness/industryto operate at the expectedlevels.CONCEPTS OF WORKING CAPITALGROSSWORKING CAPITAL = CAThese are in the system used/ consumed on aday to day basis.NET WORKINGCAPITAL = CA CLOR(SHF + TL) (NFA + NCA)NWC is the entrepreneur's margin available inthe system from Long term FundsWhat are Current Assets ?Assets which normally get convertedinto cash during the operating cycleof the firm. Cash & Bank balances Inventory Receivables Advances to suppliers/othersOther Current assetsWhat are Working Capital Sources?OwnfundsBank borrowingsSundry CreditorsAdvances from customersDeposits due in a yearOther current liabilitiesOPERATING CYCLE...begins with acquisition of raw materials andends with collection of receivables.Stages:1) Raw materials (RM/RM consumption)2) Work-in-process (WIP/COP)3) Finished Goods (FG/COS)4) Receivables (Debtors/Credit sales)Less:Creditors (creditors/purchases)Length of Operating CycleCashCashReceivablesServiceTradeCashReceivablesRaw MateriaIndustryFinished GoodsReceivablesStocksSemi Finished GoodsFACTORS INFULENCING WORKINGCAPITAL REQUIREMENTNature of business service/trade/manufacturing.Seasonality of operations peak/non peakProduction Policy Constant/seasonalMarket conditions- competition/credit te

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