Working Capital Management Working capital basically tells about the operating liquidity of a business.

A company may be endowed

with assets and profitability but might not have enough liquidity if the companys assets are to be readily converted into cash. A positive working capital signifies that a company is in a position to continue its operations since it has enough funds to meet its short term liabilities as welI as operational expenses.

Working capital = Current assets - Current liabilities Working Capital Management is how a company manages its current assets , current liabilities and the interrelationship between them. It comprises of cash management, inventory management and recievables management. March '2011 Current assets (A) Inventories Sundry Debtors Cash and Bank Balances Total Current Assets Current Liabilities (B) Sundry Creditors Advances from customers Expenses Payable Total Current Liabilities Working Capital (A-B) Current Ratio (CA/CL) March '2010

165691077 111064054.8 371044923.8 254450117.2 14984415.83 7607143.83 551720416.6 373121315.9

282236510.2 152112012.5 10549855.8 2321389.75 11194464 19927371 303980830 174360773.3 247739586.6 198760542.6 1.814984243 2.13993841

If we look at companys working capital it is increasing in 2011 in comparison to 2010. The reason of increase in working capital is due to the increase in its current assets. Generally an increase in the working capital is often regarded as negative cash flow. Current Ratio it is an indicative of firms ability to meet its short term obligations. The standard current ratio is 2:1. In 2010 the current ratio was 2.14 which fell to 1.82 in 2011. The fall in the ratio could be due to having a more proportionate increase in current liabilities in comparison to current assets.

Sales Inventories Inventory turnover(Sales/Inventories)

2011 1968666093 165691077 11.88154564

2010 1486443418 111064054.8 13.38365883

Inventory Conversion Period(365/ITR)(A) Debtors turnover ratio(Sales/Debtors) Recievables Collection Period(365/DTR)(B) Purchases Creditors Turnover Ratio(Purchases/creditors) Payables Defferal Period(365/CTR) ( C ) Operating Cycle (A+B-C)

30.71990894 5.305735146 68.79348289 1095256309 3.880632978 94.05682063 5.456571201

27.27206398 5.841787122 62.48087997 699962059.5 4.601622501 79.31984858 10.43309537

The operating cycle is basically the average period of time that is needed by the business to make an initial investment of cash for the production, sales and receiving of cash from the customers. In other words operating cycle is receivables collection period plus inventory conversion period minus deferral period The operating cycle is useful to estimate the amount of working capital that a company needs in order to maintain or grow their business. A company with a very short operating cycle requires less amount money to maintain their operations and that still may grow while selling at margins that are relatively small. On the other hand, a business might have fat margins and still require additional financing to grow up to a pace of modest, if its operating cycle is unusually long References

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