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What are the different methods of working capital assessment?

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What are the different methods of working capital assessment?
posted Jun 13, 2017 by Anurag Kashyap

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1 Answer

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Working Capital Sources
--Own funds
--Bank borrowings
--Sundry Creditors
--Advances from customers
--Deposits due in a year
--Other current liabilities

Working Capital Assessment Methods
--Operating Cycle Method
--Traditional method
--Projected Balance Sheet method
--Cash Budget method
--Projected Annual Turnover method (Nayak Committee)

Time taken between cash outlay and cash realisation through sale of finished goods & realisation of receivables is known as length of operating cycle. Consists of:

--Time taken to acquire and average storage period of raw material
--Conversion process time
--Average period for which finished goods are in store
--Average collection period of receivables (Sundry Debtors)

Projected Balance Sheet Method
--Proper examination of performance
-----Financial Position
-----Financial Management

Scrutiny & Validation of Projections
-----Income & Expenses
-----Changes in Financial Position
-----Acceptability of Liquidity, Overall gearing, efficiency of operations

Cash Budget Method
--Applicable to seasonal industry (such as tea, sugar)
--Specific industry (such as Information Technology and software)
--Based on Peak Deficit projected as per cash flow statement

answer Jun 13, 2017 by Durga Prasad
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