18-06-2013, 12:49 PM
Impact of Current Assets on Working Capital At Oilgear Towler Polyhydron Private Limited (OTPL)
Impact of Current Assets.doc (Size: 1.96 MB / Downloads: 21)
Introduction: -
The project is assigned to me “Impact of Current Assets on Working Capital”. At Oilgear Towler Polyhydron Private Limited (OTPL). The various information regarding classification, determinants, components, sources, arrangement operating cycle have been also discussed and aspects relating to the perspective of Oilgear Towler Polyhydron Private Limited (OTPL).
Ratio Analysis has been carried out using Financial Information for last three accounting years i.e. from 2003 to 2005; Ratios like Current Ratio, Working Capital Turnover Ratio, Inventory Turnover Ratio, Debtors Turnover Ratio have also been analyzed. A Statement of Changes in Working Capital has also been analyzed and attached Turnover & Performance of the Company for last three years has also been analyzed.
MEANING & DEFINITION OF WORKING CAPITAL: -
Working capital in simple terms is the amount of funds, which a company, must have to finance its day-to-day operation, it can be regarded as part/portion of capital, which is, employed in short operation.
Every organization invests their funds in two terms of capital namely,
1. Fixed Capital.
2. Working Capital
The amount invested in the assets like Plant and Machinery, Building, Furniture etc, blocked on permanent basis and is called Fixed Capital Organization not only requires Fixed Capital, but also need of fund to meet day to day operations for short term purpose, such funds is called Working Capital.
A Study of Working Capital is of major part of the external and internal analysis because of its close relationship with the current day to day operation of business. Working Capital consists broadly for that position/the assets of a business that are used at related current operations and is represented by raw materials, stores, work in process and finished goods merchandise, note/bill receivable.
IMPORTANCE OF WORKING CAPITAL: -
Working Capital is most important in every organization whether it is a small or big concern. Therefore it is said that, working capital is the blood and center at a business.
1. Adequately Working Capital creates certainty, security and confidence in the minds of the person in the might as well in the minds of creditors and workers.
2. It creates a good credit standing for the firm because credit standing depends upon the ability to pay promptly. A company with adequate working capital is always able to meet C.L. in time.
3. It ensure solvency and stability of the enterprise it also ensures continuity in production and sales.
4. It enables the company to take advantage of cash discount allowed by the suppliers of raw materials or merchandise.
5. It enables the prestige of the company and the morale of its workers because a company with adequately working capital is always able to pay wages and salaries promptly and regularly.
6. It enables the company to procure loans terms banks on easy and competitive terms.
7. In terms of boon it enables the company to meet increasing demand of its product.
8. In the time of depression, it enables the company to overcome the crises successfully.
On the basics of Concept
Net Working Capital:
This is the difference between current assets and current liabilities. Current Liabilities are those that are expected to mature within an accounting year and include creditors, bills payable and outstanding expenses.
Investment is current assets represent a very significant portion of the total investment in assets. In case of public limited companies in India, current assets constitute around 60% of the total capital employed. Therefore the finance manager should attention to working capital management.
Working Capital Management is no doubt significant for all firms, but its significance is enhanced in cases of small firms. A small firm has more investment in current assets than fixed assets and therefore current assets should be efficiently managed.
The working capital needs increase as the firm grows. As sales grow, the firm needs to invest more in debtors and inventories. The finance manager should be aware of such needs and finance them quickly.
Current Assets can be finance through long-term and short-term sources. The ratio of long-term to short-term source will depend on whether the firm is aggressive of conservative. It the firm is aggressive then it will finance a part of its permanent current assets with short-term funds. On the other hand, a conservative firm will finance its permanent assets and also a part of temporary current assets with long-term financing.