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• Concerned with management of current assets
• Short-term decisions are taken
• Moves around day to day operations
• Unlike fixed assets,time plays a minor role
• Unlike fixed assets,greater flexibilty
• Risk-return trade off
Definition – Working Capital• Working Capital refers to that part of the firm’s capital, which
is required for financing short-term or current assets
Current Assets
Cash
Debtors
Inventories
Marketable Securities
Expert’s Views
Gross WC
Net
WC
Balancesheet
Concept
Total Current Asssets
Current Assets - Current Liabilities
Positive NWC = CA > CLNegative NWC = CA < CL
Accounts Payable
Cash
RawMaterials W I P
Finished Goods
AccountsReceivable
Sales
Payable Deferral period
Inventory conversionperiod
Net Operating Cycle
Gross Operating cycle
Pay forResourcespurchases
Receive Cash
Purchaseresources
SellProductOn credit
Receivable Conversion period
WORKING CAPITAL
BASIS OF
CONCEPT
BASIS OF
TIME
Gross
Working
Capital
Net
Working
Capital
Permanent
/ Fixed
WC
Temporary
/ Variable
WC
Regular
WC
Reserve
WC
Special
WC
Seasonal
WC
Fixed Assets
Permanent Current Assets
Total Assets
Fluctuating Current Assets
Time
Rs
Short-termDebt
Long-termDebt +EquityCapital
Amount of WC
(Un)Balanced Working Capital
Bal Balanced Working Capital
Bal Balanced Working Capital
Nature of Business
Availability of Credit from suppliers
Dimension I
Profitability,
Risk, & Liquidity
Long-term Financing
Short-term Financing
Spontaneous Financing
Matching Approach
Conservative Approach
Aggressive Approach
Risk
Flexibility
Cost