PREPARED BY:

GODHAVIYA JALPESH HIRPARA JAYDIP PAMBHAR HARDIK KADARI FAIZAL

GUIDED BY:
PROF. Khusboo Malde

Working Capital refers to that part of capital which is not tied up in fixed assets but it is used to meet the day-to-day requirements of business.

It is invested in current assets like Cash, Stock, Bills Receivable, Debtors etc.
It is used to make payments for purchase of Raw Materials, Wages and to meet other expenses.

The risk element is low in WC. WC is also known as Current Capital, Circulating Capital and Floating Capital. An important feature of WC is that it changes with market conditions and circumstances.

1.

Hedging Approach Under this approach, the maturity of source of funds is matched with the life of the asset. Funds for acquiring fixed assets and permanent current assets should be acquired with long term funds like long term loans or equity shares. Temporary working capital should be acquired from short term funds.

Variable Current Assets Short Term Funds

Assets Permanent Current Assets Long Term Funds

Fixed Assets

Time Period

2. Conservative Approach It depends on long term funds to great extent. It suggests that in addition to fixed and permanent current assets, even a part of variable current assets should be financed from long term funds. The short term funds should be used to meet the peak seasonal requirements.

Variable Current Assets

Assets

Permanent Current Assets

Long Term Funds

Fixed Assets

Time Period

3. Aggressive Approach
This approach depends on short term funds. Funds for acquiring fixed assets, permanent current assets and variable current assets should be acquired from short term loans.

Variable Current Assets

Short Term Funds

Assets

Permanent Current Assets

Fixed Assets

Long Term Funds

Time Period

A. Shares and Debentures

To meet the initial requirements. To expand business. To recover the sudden and unexpected decline in the Working Capital. It is not advisable to raise regular working capital through debentures, because it entails a constant burden on the company.

B. Retained Earnings

Working Capital requirements can financed from the Retained Profits.

be

Retained Profits are considered as the cheapest and the most common method of securing working capital by an enterprise. Working Capital can be made available by providing for depreciation.

C. Commercial Banks

They are the most important source of short term funds to industrial enterprise. Majority of Indian enterprises rely on commercial banks. A large percentage of the funds consists of demand deposits which are liable to be withdrawn without notice.

D. Commercial Paper

Commercial Paper is a short term promissory note sold by highly rated companies. It is issued on discount but are payable at face value at the time of maturity. It is an unsecured instrument and is regulated by RBI. The minimum size of an issue is Rs. 25 lacs and the minimum amount of subscription is Rs. 5 lacs by an investor.

E. Certificate of Deposits

These are receipts issued by banks acknowledging fixed deposits for a specific period of time. These receipts are negotiable instruments. When the certificates mature, the owner gets the full amount deposited plus interest. The default risk is that of a bank failure which is a remote possibility.

F. Commercial Bills Market

Under the rediscounting scheme of RBI, it rediscounts the bills at the bank rate or at some specified rates.
This instrument provides short liquidity to banks in needs of funds. term

G. Factoring

Factoring involves an outright sale of receivables of an organisation to a financial institution called the Factor who specialises in the management of trade credit. A firm relieves itself of the expense of maintaining credit department or making collections.

H. Trade Credit

It is a credit granted by suppliers. Usual duration of such is 30 to 90 days. Pressure of working capital is reduced. Duration of credit depends on the relations between the parties.

I. Public Deposits

The system was popular in textile industry of Mumbai and Ahmedabad and in tea gardens of Assam and Bengal in the 19th century. Since the beginning of the Third Plan, the growth of such deposits has been considerable. Deposits are accepted from members of public for periods varying from 6 months to 3 year at ROI ranging from 10-15%.

J. Bankers and Money Lenders

Indigenous Bankers provide loan for short term i.e. for period of week or month. Money lenders provide cash credit for a period of one year. If the borrower has goodwill and if his financial position is stable, money lenders will grant loan on personal security also.

K. Urban Co-operative Banks Co-operative Banks in urban areas grant loans to meet short term and medium term requirements. Short term loans are of the duration of 1 year while Medium term loans are of duration of more than 1 and less than 5 years. The Register does not allow such banks to grant long term loans.

This concludes the presentation, thank you for your time and interest.