Assignment on

Working Capital Analysis on

PRAN-RFL Company

Welcome to Our Presentation

Submitted BYName ID

Osman Goni Shagor 1282Md. Kamrul Hasan Chy 1291

Sanjida Afroz 1314Fahamida Sultana 1262Jannatul Mauwa 1296Ashik Bin Jamal 1236

Presentation Date : July 1st , 2015

IndexContents Slide No

Definition of working Capital 4Types of working capital 5 Source of working capital 8Statement of Financial Position of PRAN-RFL Company

10

Calculation of Net Working Capital

11

Net Working Capital ratio 12Effect of working capital ratio in PRAN-RFL Company

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Working capital is the life blood and nerve centre of a business. Just as, working capital is very essential to maintain the smooth running of a business

Working capital refers to that part of firm’s capital which is required for financing short term or current assets such as cash, marketable securities, debtors, and inventories. In other words working capital is the amount of funds necessary to cover the cost of operating the enterprise.

Meaning: Working capital means the funds (capital) available and used for day to day operations ( working) of an enterprise. It consists broadly of that portion of assets of a business which are used in or related to its current operations. It refers to funds which are used during an accounting period to generate a current income of a type which is consistent with major purpose of a firm existence.

INTRODUCTION TO WORKING CAPITAL

Working capital :is the fund which is used for daily operation of businesses. That acts as important concept in finance.

Working capital: represents the funds available with the company for day to day operations.

working capital: finances the cash conversion cycle. company cannot survive with negative working capital which represents that the company has no funds for day to day operations

Working capital is: Current asset – current Liabilities.

Definitions

Types of working CapitalWORKING 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

BASIS OF CONCEPT

There are two concepts of working capital: Gross and Net.Gross working capital- means the

total current assets.Net working capital- means the

difference between current assets and current liabilities.

BASIS OF TIME 1. Permanent Working Capital

It is the minimum working capital required for producing predetermined production

2.   Temporary Working Capital: It is the additional current assets required for

temporary period, and it is above permanent WC

Permanent & Temporary Working Capital For Stable Firm

Amount Variable Working Capitalof WorkingCapital

Permanent Working Capital

Time Permanent and temporary working capital for Stable firm

Permanent And Temporary Working Capital For Growing Firm

Variable Working CapitalAmount of WorkingCapital

Permanent Working Capital

Time Permanent and temporary working capital for Growing firm

THE NEED OR OBJECTS OF WC

WC is needed for the following purposes:- For the purchase of raw material. To pay wages & salaries. To incur day to day expenses and overhead

costs. To meet selling costs. To provide credit facilities to the customer. To maintain the inventories of raw material,

work in progress, stores and spares and finished stock.

SOURCES OF WORKING CAPITAL

Cash Credit / Overdraft Cash Management Working Capital Demand Loan Bill Discounting / Receivable Discounting Export Finance / Bill Negotiation Term Loans Letter of Credit Bank Guarantee Foreign Currency Loans

WORKING CAPITAL ANALYSIS OF PRAN-RFL COMPANY LTD.

Calculation of Net Working Capital

Formula: Net Working Capital : Current Assets –

Current Liabilities

Net Working Capital: 335186963 – 193381209 = 141805754

Net Working Capital RatioWorking Capital ratio: __Current Assets__

Current Liabilities 335186963___ 193381209 = 1.73 or 173%

2011

2013

0200400600800

1000

RevenueWorking CapitalNet Profit

2011- 154%2012- 159%2013- 173%2014- 173%

Effect of Working Capital In PRAN-RFL Group

Effect on CashWhen planning the short or long-term funding requirements of a business, it is more important to forecast the likely cash requirements than to project profitability etc.

More businesses fail for lack of cash than for want of profit.

Calculating Cash Flows:

Cash flow planning entails forecasting and tabulating all significant cash inflows relating to sales, new loans, interest received etc., and then analyzing in detail the timing of expected payments relating to suppliers, wages, other expenses, capital expenditure, loan repayments, dividends, tax, interest payments etc.

Effect of Working Capital In PRAN-RFL Group

Maintaining Liquidity position For maintaining liquidity position there is a need to maintain CA sufficiently in excess of CL

Judge Financial Soundness of a firm The Net working capital helps creditors and investors to judge financial soundness of a firm

Credit Worthiness:Credit worthiness means the capacity of paying all credits like account payable, loans etc. If the working capital is too low then average, the company can not pay the dues.

Effect of Working Capital In PRAN-RFL Group

New Investment:Working capital helps the company making any new investment. If the company have much working capital than they actually need, they can use those amount of money for new projects.

Revenue Earning:Surplus working capital kept idle in the company, it can not generate income for the company. So, company can use the surplus amount of money in production or other project and add some extra amount of money with revenue.

Maintains Solvency of Business:Working capital can be used in paying dues, salaries and wages. It also can use as emergency fund at the time of business crisis.

Effect of Working Capital In PRAN-RFL Group Creating & Maintaining Goodwill:

Working capital is a sing of companies solvency. Company does not get any loan benefits if they have working capital shortage. Shortage of working capital have an bed effect on paying credits. That may reduce company’s goodwill.

After study the nature of production, we can estimate the need for working capital. If company produces products at large scale and continues producing goods, then company needs high amount of working capital. 

As we discussed working capital is the life blood of the business so we should keep it controlled I think if we use from Gross Working capital we can expedite our business well and every thing in average will work more.

What is the need for working capital?

Thank You