Evaluating the Working Capital Requirements of Dlf
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Transcript of Evaluating the Working Capital Requirements of Dlf
ASSIGNMENT ON WORKING CAPITAL MANAGEMENT
2 TABLE OF CONTENT
Pg no.
Company Profile
3
Working Capital Management
4
Meaning
Factors Affecting working capital
Working capital cycle
Working capital management
6
Kinds of Working capital
8
Inventory management at Dlf
13
Methods used for inventory control
15
Cash management at dlf
15
3 Receivable management at dlf
16
Key working capital ratios
17
Interpretation of ratios
19
Calculation of working capital
24
Current asset holding period
Ratio to sales
Ratio to fixed investment
WORKING CAPITAL MANAGEMENT
For
DELHI LAND AND FINANCE
(DLF)
DLF Limited or DLF (Delhi Land and Finance) is the India's biggest real estate developer based in New Delhi, India. The DLF Group was founded by Raghuvendra Singh in 1946. DLF developed residential colonies in Delhi such as Shivaji Park ( which was actually its first one), Rajouri Garden, Krishna Nagar, South
4Extension, Greater Kailash, Kailash Colony and Hauz Khas. In 1957, with the passage of Delhi Development Act, the local government assumed control of real estate development in Delhi and banned private real estate developers.
As a result DLF began acquiring land at relatively low cost outside the area controlled by the Delhi Development Authority, in the district of Gurgaon, in the adjacent state of Haryana. In the mid-1970s, the company started developing DLF City project at Gurgaon. Its upcoming planinclude hotels, infrastructure and special economic zones-related development projects.
In this report I have highlighted the (working capital management of DLF), focusing on different components of working capital like, cash management, inventory management etc. Various necessary ratios have been calculated in order to analyze the financial stability of the company.
Thereafter the working capital requirement of overall DLF has been calculated. After that analysis of working capital has been done.
WORKING CAPITAL MANAGEMENT
(WORKING CAPITAL (DEFINITION)
Working capital refers to the funds invested in current assets i.e.
sundry debtors, inventories, cash & bank balance and other current
assets. In other words, the fund requires supporting day to day
5operations such as purchase of raw materials, payments of wages
and defraying other expenses for operations
FACTORS AFFECTING WORKING CAPITAL REQUIREMENTS
Nature of business: The nature of business influences to a great
extent the amount of working capital to be required to run the
business.
Size of business: Large business requires large amount of
working capital than a small business where operations are
relatively less, though they engaged in the same type of business
operations.
Production policy: The need for working capital will vary
according to production plans.
Operating efficiency: Optimum utilization of resources at
minimum costs as a result of which profitability increases. It helps
in increasing generation of internal funds which reduces the
pressure on working capital.
Credit policy: The credit policy of the firm also determines the
working capital requirement.
Supply of raw materials: If supply of raw materials is regular
then there is no necessary to maintain a huge level of inventory &
no blocking of working capital unnecessarily.
6Market Conditions: Working Capital requirements are also
affected by market conditions like degree of competition.
Condition of supply: The inventory of raw materials, spares and
stores depends on the conditions of supply.
Dividend Policy: Dividend policies affect Working Capital.
Growth and Expansion: Growth and expansion of a firm
requires adequate working capital.
Abnormal Factors: Working Capital requirement is also affected
by the abnormal factors like strikes, lockout, inflationary
conditions etc.
1. Working Capital Cycle
Cash flows in a cycle into, around and out of a business. It is the
business's life blood and every manager's primary task is to help
keep it flowing and to use the cash flow to generate profits. If a
business is operating profitably, then it should, in theory, generate
cash surpluses. If it doesn't generate surpluses, the business will
eventually run out of cash and expire.
The faster a business expands the more cash it will need for
working capital and investment. The cheapest and best sources of
cash exist as working capital right within business. Good
7management of working capital will generate cash will help
improve profits and reduce risks. The business should bear in mind
that the cost of providing credit to customers and holding stocks
can represent a substantial proportion of a firm's total profits.
There are two elements in the business cycle that absorb cash -
Inventory (stocks and work-in-progress) and Receivables
(debtors owing you money). The main sources of cash are
Payables (your creditors) and Equity and Loans.
WORKING CAPITAL MANAGEMENT
The term Working capital management refers to the management
efforts for optimizing the working capital and improving the
productivity of the short term capital invested in the Business. It
includes decisions relating to working capital and short term
8financing and involves managing the relationship between a firm's
short-term assets and its short-term liabilities. The goal of working
capital management is to ensure that the firm is able to continue
and that it has sufficient cash flow to satisfy both maturing short-
term debt and upcoming operational expenses.
Cash management - Identify the cash balance which allows
for the business to meet day to day expenses, but reduces
cash holding costs.
Inventory management - Identify the level of inventory
which allows for uninterrupted production but reduces the
investment in raw materials - and minimizes reordering costs -
and hence increases cash flow.
Debtor’s management - Identify the appropriate credit
policy, i.e. credit terms which will attract customers, such that
any impact on cash flows and the cash conversion cycle will
be offset by increased revenue and hence Return on Capital
(or vice versa); see Discounts and allowances.
Short term financing - Identify the appropriate source of
financing, given the cash conversion cycle: the inventory is
ideally financed by credit granted by the supplier; however, it
9may be necessary to utilize a bank loan (or overdraft), or to
"convert debtors to cash" through "factoring".
Managing payables - Creditors are a vital part of effective
cash management and should be managed carefully to
enhance the cash position.
KINDS OF WORKING CAPITAL
Kinds of working capital are shown in the following chart:-
10
CONCEPTS OF WORKING CAPITAL
The concept of Working Capital includes Current Assets and
Current Liabilities both. There are two concepts of Working Capital
they are Gross and Net Working Capital.
1. Gross Working Capital: Gross Working Capital refers to the
firm's investment in Current Assets. Current Assets are the assets,
which can be converted into cash within an accounting year or
operating cycle. It includes cash, short-term securities, debtors
(account receivables or book debts), bills receivables and stock
(inventory).
KINDS OF WORKING CAPITAL
ON THE BASIS OF CONCEPT
GROSS WORKING CAPITAL
NET WORKING CAPITAL
ON THE BASIS OF TIME
PERMANENT OR FIXED WORKING
CAPITAL
REGULAR WORKING CAPITAL
RESERVE WORKING CAPITAL
TEMPORARY OR VARIABLE
WORKING CAPITAL
SEASONAL WORKING CAPITAL
SPECIAL WORKING CAPITAL
112. Net Working Capital: Net Working Capital refers to the
difference between Current Assets and Current Liabilities are those
claims of outsiders, which are expected to mature for payment
within an accounting year. It includes creditors or accounts
payables, bills payables and outstanding expenses. Net Working
capital can be positive or negative. A positive Net Working Capital
will arise when Current Assets exceed Current Liabilities and vice
versa.
On the basis of TIME, working capital may be classified as:
Permanent Working Capital - Permanent or fixed working
capital is the minimum amount which is required to ensure
effective utilization of fixed facilities and for maintaining the
circulation of current assets. As the business grows, the
requirements of permanent working capital also increases due o
the increase in current assets.
The permanent working capital can further be classified as
regular working
Capital. Working capital required to ensure circulation of current
assets from cash to inventories, from inventories to receivables
and from receivables to cash and so on is known as regular
working capital. Reserve working capital is the excess amount
over the requirement for regular working capital which may be
provided for contingencies that may arise at unstated periods
12such as strikes, rise in prices, depression ,etc. it is required by
the enterprise to carry out its normal business operations.
Temporary or Variable Working Capital - Temporary or
variable working capital is the amount of working capital which is
required to meet the seasonal demands and some special
exigencies. Variable working capital can be further classified as
seasonal working capital and special working capital. Most of the
enterprises have to provide additional working capital to meet
the seasonal and special needs. The capital required to meet the
seasonal needs of the enterprise is called seasonal working
capital.
Special working capital is that part of working capital which is
required to meet special exigencies such as launching of
extensive marketing campaigns for conducting research, etc.
DIFFERENCE BETWEEN TEMPORARY WORKING CAPITAL AND
PERMANENT WORKING CAPITAL
Temporary working capital differs from permanent working capital
in the sense that it is required for short periods and cannot be
permanently employed gainfully in the business.
OBJECTIVES OF WORKING CAPITAL
Every business needs some amount of working capital. It is needed
13for following purposes-
• For the purchase of raw materials, components and spares.
• To pay wages and salaries.
• To incur day to day expenses and overhead costs such as fuel,
power, and office expenses etc.
• To provide credit facilities to customers etc.
ADVANTAGES
• It helps the business concern in maintaining the goodwill.
• It can arrange loans from banks and others on easy and favorable
terms.
• It enables a concern to face business crisis in emergencies such
as depression.
• It creates an environment of security, confidence, and overall
efficiency in a business.
• It helps in maintaining solvency of the business.
ADEQUACY OF WORKING CAPITAL
A firm must have adequate working capital. It should neither be
excessive nor inadequate. Excessive working capital is a situation
where in the firm invests excessive funds in working capital. These
excessive or idle funds earn no profit for the firm.
DANGERS OF EXCESS WORKING CAPITAL
14 It may result in unnecessary accumulation of inventory which
may lead to increase in wastage due to mishandling, theft etc.
It is an indication of defective credit policy. There is the
possibility of higher incidence of bad debts.
It may lead to complacency in managing day-to-day expenses
of the firm.
Executives may be tempted to spend more
Excessive working capital means idle funds which earns no
profit for the business, and thus cannot earn proper rate of
return on its investments.
It may result into overall inefficiency in the organizations.
When there is excessive working capital relation with banks
and other financial institutions may not be maintained.
The redundant working capital gives rise to speculative
transactions.
Due to low rate of return on investments the value of shares
may also fall.
In case of redundant working capital there is always a chance
of financing long term assets from short term funds which is
very harmful in long run for any organization
Inadequate working capital is a situation where in the firm
does not have sufficient funds to meet day to day running
expenses. This ultimately results in interruption in the
production process.
15
DANGERS OF INADEQUATE WORKING CAPITAL
Operating inefficiencies creep in when it becomes difficult of
meet day-to-day commitments.
It becomes difficult to implement operating plans and achieve
firm’s targets.
It directly affects firm’s liquidity position and the firm may find
it difficult to honor short-term obligations.
It cannot by its requirements in bulk and cannot avail of
discounts it stagnates growth.
It becomes difficult for the firm to exploit favorable market
conditions and undertake profitable projects due to non
availability of working capital funds.
It becomes impossible to utilize efficiently the fixed assets due
to non availability of liquid funds thus the firm’s profitability
would deteriorate.
ii) SIGNIFICANCE OF WORKING CAPITAL MANAGEMENT OF DLF
INVENTORY MANAGEMENT AT DLF
The investment in inventory in production is a dominant
determinant of working capital management. It holds much
16important in context of DLF as it is having a long production cycle
where a good amount of capital is tied up in form of raw material,
work in progress and conversion cost. Production planning and
control department plays a pivotal role in inventory management.
The engineering department plays a supporting role and provides
the
requisition regarding technology to be applied and material
requires to PPC department. In DLF the inventory control is perform
with following steps: -
1. Planning -
This is done by PPC department is consultation with purchase,
commercial, design and manufacturing department prepares the
planning schedule. This schedule along with information provided
by engineering and design department helps in material planning
and inventory control.
2. Procurement –
The procurement is done by purchase department. It is done with
the assistance of PPC and commercial department for maintaining
a tradeoff between carrying costs and ordering cost. A single
purchase order is placed for the entire quantity of a specific item
and its scattered delivery over a period of time is received. This
method helps in obtaining cash and quantity discounts and saving
17carrying cost. In case of foreign purchase also one order is placed
for the full requirement of an item and scattered delivery is opted
because variation caused in material cost due to fluctuation in
exchange rate is much less than the carrying cost of the material
which is approximately 25% of the total price.
3. Receipt and Custody
For the proper inventory control on receipt of material in store,
quality control department checks the material as per specification.
The cost section fills details of all the purchase by issuing store
receipt voucher and material issue voucher.
4. Issue
After receiving the material and storing, the management keeps
the information whether these material are being issued to desired
destination. Full record of every issuing of material is kept for the
proper inventory control.
5. Accounting-
The record of every transaction regarding the use of
Material in every department is kept. These records give the
Overall view of how and where inventories have been used.
Methods Used For Inventory Control
18In DLF, planning and control of inventory is done by
Using two methods —
(i) ABC analysis
(ii) Slow moving and non-moving goods Analysis.
(iii) Budgeting material requirements
(iv) Fixation of raw material levels
(v) Variety reduction
(vi) Codification of materials
(vii) Control of work in progress
In case of manufacturing company like DLF, the number of items of
raw material runs into thousands. From the point of view of
monitoring information for control, it becomes extremely difficult to
consider each one of these items. In this case ABC analysis
becomes useful and enables management to concentrate attention
and keeps a close watch on a relatively less number of items,
which account for a high percentage of annual usage value of all
items of inventory.
Annual usage value = Annual requirement per unit cost.
CASH MANAGEMENT AT DLF
In D.L.F., the centralized cash credit system is followed.
From 24-09-80 all the banking transactions of the company have
been centralized at corporate office, New Delhi. Under this system
19all the sales proceeds of the units are deposited in a centralized
account. This account number is universal for all the units of ROD’s.
For meeting day to day expenses, the units have to prepare the
estimates of such expenses, which are then sent to corporate office
weekly, or monthly, or both. At unit level, the cash budget is
prepared on yearly basis for estimating the expected cash inflows
and outflows. The yearly budget is broken down into monthly and
weekly intervals. The inflows and outflows are estimated on the
following basis. The only source of cash inflow for unit is corporate
office. The sale proceeds cannot be directly utilized. Based on the
above requisitions, the corporate office allocates the funds. For
cash credit, corporate office will negotiate with consortium of Banks
for total cash credit required for the company as the whole. A
consortium deed for hypothecation of stocks and stores of
company is executed by corporate office. All the information,
documents etc. required in this connection will be called for by the
corporate office from the division.\ Arrangements have been
already been made by the State Bank of India, HDFC Bank, Canara
Bank, Bank of Baroda and Indian Overseas Bank for centralizing
total cash credit limits at New Delhi.
RECEIVABLE MANAGEMENT AT DLF
DLF grants liberal terms regarding trade credit to lure the potential
customers to buy its product at favorable selling prices. To utilize
its excess capacity, DLF is granting liberal trade credit terms to its
20customers. All the DLF units are having their commercial
department. Commercial department and Regional Operational
Divisions (RDOs) primarily carry out the job of recovery from the
customers. The sales section of finance department also actively
takes part in receivable management by preparing and sending
invoices and reminders to customers at appropriate time. They
keep track of money received from customers as advances, as
against dispatch of finished goods and money recoverable on
account of price variation claims and conversion of deferred debts into
debtors. This monitoring is done work order wise. The aging
schedule of customers is also prepared which gives the record
regarding period of outstanding balances. The terms and conditions
with the customers are finalized according to the credit policy laid
down by corporate office, DLF. However deviations are permitted
with the due approval from corporate office. While lying down of
credit policy by the head office, industry conditions are taken into
consideration. Seeing huge investment in execution of work order,
DLF demands considerable payment in advance in different phases
of completion of work i.e. erection, installation, commissioning,
maintenance etc. Despite all these DLF is presently facing cash
crunch because a major chunk of DLF’s customers consists of
government bodies, which are very casual in clearance of dues.
KEY WORKING CAPITAL RATIOS AND THEIR INTERPRETATIONS
21DEBTORS TURNOVER RATIO
This ratio shows how many times sundry debtors (accounts
receivable) turn over during the year. It is defined as Net credit
sales / Average sundry debtors. A high ratio is indicative of
shorter time lag between credit sales and cash collection. A low
ratio shows that debts are not being collected rapidly. The analysis
of the debtor’s turnover ratio supplements the information
regarding the liquidity of one item of current assets of the firm.
After analyzing the debtors’ turnover of DLF it is clear that DLF
follows a liberal credit policy.
DEBTORS HOLDING PERIOD (in days)
DEBTORS/ (TURNOVER/365)
CREDITORS HOLDING LEVEL
CREDITORS/(PURCHASE/365)
On average, you pay your suppliers every x days. If you negotiate better(in days) (or Purchases) credit terms this will increase. If you pay earlier, say, to get a discount this will decline. If you simply defer
MAR2006 MAR2007 MAR2008 MAR2009
180 188.98 204.25 208.04
22paying your suppliers (without agreement) this will also increase - but your reputation, the quality of service and any flexibility provided by your suppliers may suffer.MAR2006 MAR2007 MAR2008 MAR2009121 123 129 115
Creditors holding period is decreasing which is a good sign for the
company because it shows that the creditors are being paid in
time.
STOCK TURNOVER IN DAYS
Stock Turnover Average Stock * 365/ = x days on average, you turn over the value of your entire stock every x days.(In days) Cost of Goods Sold You may need to break this down into product groups for effective stock management.
Obsolete stock, slow moving lines will extend overall stock turnover days. Faster production, fewer product lines, just in time ordering will reduce average day
SL.N
O
PARTICULARS FORMULA (2006-
2007)
(2007-
2008)
(2008-
2009)
1 RAW
MATERIAL(RM)
CONSUMPTION
10281.
86
11850.
87
17625.
05
2 PER DAY 1/365 28 32 48
3 RM 1942.4 2632.6 3582.8
23BALANCESHEET 9 4 3
4. HOLDING LEVEL 3/2 70 81 74
5. COST OF
PRODUCTION
14049.
92
16074.
99
22438.
5
6. PER DAY 5/365 38.48 44.02 61.48
7. STK IN
PROGRESS
(BALANCESHEET
)
1875.6
3
2548.5
3
3612.5
9
8. HOLDING LEVEL 7/6 49 58 59
9 COST OF SALES 14506.
72
17145.
35
24024.
27
10. PER DAY 9/365 39.74 46.97 65.82
11. FINISHED
GOODS
BALANCESHEET
401.55 557.23 643.6
12. HOLDING LEVEL 11/10 10 12 10
13. TOTAL HOLDING
LEVEL
(12+8+4) 129 151 143
CURRENT RATIO
CURRENT ASSET/CURRENT LIABILITY
The current ratio measures the company’s ability to pay its current debt. The current assets are used to pay current debts as current assets get converted into cash in the operating cycle of the firm. C.R 2:1 is taken as standard which means that each rupee of current liabilities should be backed by current assets valued two
24rupees. Normally a ratio under 1 suggests that the company would be unable to pay off its obligations if they become due at that point.
MAR 2006 MAR 2007 MAR 2008 MAR 2009
1.58 1.46 1.39 1.30
QUICK RATIO
QUICK RATIO
MAR
2006
MAR
2007
MAR
2008
MAR
2009
1.22 1.17 1.11 1.02
An Acid test ratio 1:1 is considered normally to be satisfactory. The
acid test ratio of DLF is still at a comfortable level. This means for
any immediate requirements or payments of current liabilities
enough current assets exist. Payments. Acid test ratio of DLF also
signifies that without debtors & inventories as part of current
assets the firm still has a good liquidity position.
WORKING CAPITAL RATIO
Mar Mar Mar’0
25'07 '08 9
PARTICULARS12 months
12 months
12Months
Working capital turnover ratio=Cost of goods sold/Net working capital
2.14 2.14 2.80
Inventory To Working Capital Ratio=Inventory/Working Capital
0.62 1.520.91
Ratio of Current Assets to Fixed Ratio=Current Assets/Fixed Assets
16.24 16.90 14.01
ANALYSIS
After analyzing the above ratios it is evident that Working capital
turnover ratio is fluctuating due to the fluctuating cost of capital
& amount of net current assets. For the first two financial years
the ratio remained constant as the proportion of increment of
cost of capital & w/c is same as the previous year’07. The overall
ratio does not indicate any steady growth of w/c.
Inventory to working capital ratio has increased in 2008-09 due
to the increase in cost of inventories.
Ratio of current assets to fixed assets is gradually decreasing. It
is because of the increase of fixed assets. It indicates the strong
fixed assets in the company balance sheet.
26CALCULATION OF WORKING CAPITAL OF DLF
PARTICULARS ACTUAL
2005-
2006
Crores
ACTUAL
2006-
2007
(Rs.
Crores)
ACTUAL
2007-
2008
(Rs.
Crores)
ACTUAL
2008-
2009
(Rs.
Crores)
CURRENT ASSETS
INVENTORY 3744.37 4217.67 5736.40 7837.02
SUNDRY DEBTORS 7168.07 9701.82 11976.87 15978.50
CASH & BANK
BALANCES
4135.97 5808.91 8386.02 10314.67
OTHER CURRENT
ASSETS
84.50 199.70 421.09 350.21
LOANS&ADVANCES 1199.87 1140.87 1387.80 2423.67
TOTAL A 16332.7
8
21069.97 27908.18 36904.07
CURRENT
LIABILITIES&
PROVISIONS B
CURRENT LIABILITIES 8807.74 11897.87 16576.45 23357.32
PROVISIONS 1512.28 2522.24 3445.85 4975.58
TOTAL B 10320.0
2
14420.11 20022.30 28332.90
NET CURRENT
ASSETS
A-
B
6012.7
6
6649.86 7885.88 8571.17
27
GRAPH SHOWING NET CURRENT ASSETS OVER THE YEARS
2005 06 2006-07 2007-08 2008-090
1000
2000
3000
4000
5000
6000
7000
8000
9000
WORKING CAPITAL MOVEMENT
WORKING CAPITAL MOVEMENT
rs in
cro
re
In the above figure we find that the working capital of DLF is
constantly growing. Therefore it is seen that working capital is
being adequately maintained each year which also means that DLF
plans very well the various sources of short term finance DLF not
only studies the trend of its working capital positions but also
efficiently minimizes the cost of short term finance.
28
USING DIFFERENY APPROACHES OF ESTIMATING WORKING CAPITAL
THE WORKING CAPITAL REQUIREMENT OF DLF IS DETERMINED
Estimating working capital requirements
The basic formulae for calculating working capital is the difference between current assets and currentLiabilities (working capital = current assets – current liabilities) and a ratio of 2:1 is considered as ideal orStandard i.e. for every 1 unit of current liability there should be 2 units of current assets. However, there arefew approaches which have been successfully applied in practice.1. Current assets holding period: To estimate working capital requirements on the basis of average holding period of current assets and relating them to costs based on the company’s experience inthe previous years. This method is essentially based on the operating cycle concept.2. Ratio to sales: To estimate working capital requirement as a ratio of sales on the assumption that current assets change with sales.3. Ratio to fixed investment: To estimate working capital needs as a percentage of fixed investment.
(ALL FIGURES IN INR CRORES ASSUMPTIONS MADE AS PER 1 MONTH)
(ALL FIGURES IN INR CRORES ASSUMPTIONS MADE AS PER 1 MONTH)
291. CURRENT ASSET HOLDING PERIOD
Calculating the 12 months average holding period of current assets,
A. INVENTORY
(a) Raw material (one month’s supply)= Raw material consumed in a year /12
(MARCH 2009)1762.05/12 = 1469
(b) WIP
Work-in-progress (one month’s supply)= Work-in-progress/12(MARCH 2009) 3612.59/12 =301
(C) FINISHED GOODS
Finished goods3 (one month’s supply)Finished goods/12(MARCH 2009) 22246/12 = 1854
TOTAL INVENTORY NEEDS- (1468+301+1854) = 3623
B.SUNDRY DEBTORS (1 month’s sale)
ANNUAL SALES (2008-2009)/12
28033/12 =2336
C.CASH AND BANK BALANCES (1 months total production cost)
30Total production cost as per schedule/12
22439.5/12 = 1870
Therefore adding A, B, &C we get total working capital requirement
3623+2336+1870 = 7829
However, this method is subject to error if the business is prone to seasonal fluctuations.
2. Ratio to Sales: The average percentage is calculated based on the assumption that sales of next FY 2010 will grow by 22.60%
AVERAGE % OF CURRENT ASSET TO SALESPARTICULARS MARCH
2007MARCH2008 MARCH
2009SALES 18738 21402 28033
CURRENT ASSETS(C.A)
21069.97 27908.18 36904.07
% OF(C.A) TO SALES
112.40% 130.40% 131.63%
AVG % 124.81 or 125
It is assumed that in FY 2010, increase in sales is 22.60%. Hence, the sales in FY 2010 is 28033*122.60/100 = INR 34368.45 crores.Average sales growth = Sales growth rate over past three years/number of years= [22.60 (FY2009) + (31) (2008) + 14.21(2007)]/3= 22.60Therefore, the amount of working capital requirement is 125% of sales (2009), INR 28033 crores, which isINR 35041 crores
31This approach has limited reliability because it depends on the accuracy of sales estimation. In case of inaccurate sales estimation, the percentage calculation of current assets to sales will go wrong and hence the working capital requirement will also go wrong.
3. Working capital ratio of Fixed Investment: This method is generally not used in practice as this method also depends on the level of accuracy of fixed investments calculation.
However, it is observed that every approach of estimating working capital requirements have some limitations. It depends on the nature of the industry and company’s capability in managing current assets which determine the working capital requirements.