INTRODUCTION

The increase in shareholder wealth is a society must consider the impact of fixed assets and working capital to risk analysis of return. Working capital management is consistent with the working capital management in context. The management of current assets and other assets based on the following points:

1. Current assets are used for short periods of fixed assets in more than a year.

> 2 The larger companies of current assets, including cash,enhances the liquidity, but also reduces the overall profitability and the optimal level to maintain its liquidity and profitability, the risk return trade-offs involved in the possession of property.

3. Only assets can be volatile in the short term, with billings. The company has greater flexibility in managing the assets. The management of current assets to help maintain that building a good reputation in the market in terms of business and economic conditions.

NowFirst we will discuss the paradigms of working capital management.

Concept of working capital:

The concept of capital includes current assets and current liabilities both. There are two concepts of working capital, are gross and net working capital.

1st gross-Working Capital: Gross capital refers to investment in the company's current activities. Current assets are assets that can be converted into cash within a year, accounting or operatingCycle. It includes cash, marketable securities, debtors (accounts receivables or payables book), billing and receivables ha) (inventory.

2 Net Working Capital: Net Working Capital refers to the difference between current assets and current liabilities are those required of outsiders might be ripe for the payment of an exercise. It includes the creditors or bills, debts and pending payments. Net Working copulate can be positive or negative. Apositive net working capital arises when the demands Courtney exceed current liabilities, and vice versa.

Concept of Gross Working Capital

The concept of Gross Working Capital focuses attention on two aspects of management. They are:

ways) to optimize the investment in working capital.

b) the nature of the financing of working capital.

a. optimize investment in working capital, investment in working capital must be adequate, namely, neither more norInvestment deficit higher, because it increases liquidity, but rather reduces the profitability of investment in no-load and a low level of working capital for solvency of the company for its inability to meet its obligations is likely not worth . It is believed that the needs of the company's capital may be taken floating to the changing business, which more or shortage of working capital and management can often be quickly able to control the imbalance.

b. Wayfinancing of working capital: This refers to the need for the disbursement of funds to finance the activities of the territory. He says that if the need is working capital, financing arrangement should be fast. The financial manager must be aware of sources of capital funds work as a bicycle as avenues of investment, which may be temporarily idle funds invested.

Concept of Net Working Capital

This is a qualitative terms. It shows the cash position and suggeststhe extent to which the working capital needs can be financed by permanent sources. Current assets over liabilities should ideally Courtney. It also covers the issue of the proper combination of long-term and short-term funds to finance the court approval. For each company a certain amount of Net Working Capital permanently. It can therefore be financed with long-term funds.

So both concepts, gross and net working capital, are equally important for the efficient management ofWorking capital. There are no specific rules that determine gross and net working capital of a company, but it is the business of the company.

Working capital management is concerned with the problems arising during the administration of assets in short-term liabilities and the interaction for the fact that finished between them. Sun refers to the management of the toilets in all aspects of the management of both activities, current liabilities.

Every business concern, it shouldeither unnecessary or sanitation or toilets in both the short form is dangerous and should be profitable for any business. But these two, the lack of toilets is more dangerous to the welfare of society.

/ Harm redundant or excessive working capital impact

* WC too: idle funds, which do not earn profits for companies that can not earn adequate return on their investment.

* If there is a bathroom redundant, which can lead to unnecessary purchasesand the accumulation of inventories causes more opportunities if the theft, wastage and losses.

* WC excessive means excessive and bad borrowers credit policy, which may cause a higher incidence of bad debts.

* It can cause inefficiency in organizations in general.

* If there is excessive toilet connection with banks and other financial institutions can not be maintained.

* The toilet redundant results in speculative transactions.

* Due to the low rate of return on investmentThe value of shares may decrease.

* In case of a toilet overflow, there is always a possibility of long-term financing of capital funds at short notice, which is very harmful in the long term for any organization.

Dangers of short or insufficient occupation Capital One area of concern that had a proper toilet not pay, it is possible, its current liabilities over time. Therefore, it will lose its reputation and should not get in a position of good credit.

* Can not be determined by the requirements in bulk and can not useDiscounts. E 'growth is stagnating.

* E 'difficult for companies to use the favorable market conditions and to undertake profitable projects for the non-availability of sanitation fund.

* The Company can not pay for day to day costs of its operations and its credit inefficiencies that increase costs and reduce earnings.

* E 'can not make efficient use of assets by non-availability of liquidity so that the company would return to the. Worsening

* The return on investment also coincides with the lack of sanitation.

* Creeps operational inefficiencies and becomes difficult to implement operational plans and the company missed earnings targets.

Need working capital for the collection of profit and the continuous production of business, the company has sufficient funds to generate sales of investments. Current activities are necessary, because sometimes not immediately convert the cash, and contains oneCycle.

Cycle: Cycle time is the time required to convert to sales, after the conversion of resources into reserves, in cash. Investment in long-term assets such as inventories and debtors both during the period of the operating cycle of the company, which is realized in general, less than a year.

The working cycle of a production company consists of three stages: --

1. Acquisition of resources as raw materials, labor, energy, fuel, etc.

2. Manufacturethe product, the transformation in work-in-progress includes the final products.

3. Sale of assets in cash or on credit.

These phases relate to the cash flows, as is sometimes the sale on credit, and it takes sometimes to achieve.

Length or duration of the cycle: The length of the working cycle of a production company in the sum of the following characteristics:

1.Inventory conversion period

2. Periods of debt conversion.

The sum of the requestsInventory conversion period and conversion period is known as gross operating cycle.

1 conversion period Inventory: The inventory conversion period is the total time required to produce and sell the product. It includes:

a. raw conversion period.

b. Work-in-progress conversion period.

c. After the conversion period of the goods.

2nd period conversion of the debtor is the time required for the remaining amount to CollectionCustomers.

Net cycle management: Generally, a company can share resources (raw materials) to credit and temporarily defer payment of certain expenses. Liabilities that may move the society, are spontaneous sources of capital to finance investment in fixed assets Courtney.

The Bear and the time period in which the company is capable of payments on various resources, purchasing, payables deferral period. Respect between the cycle operating profit and debt deferment period is called net operatingCycle. When depreciation is excluded from net operating cycle, the retrospective assessment of the cash conversion cycle. It 'time interval between the net flow of cash.

Cycle also provide the time of the additional funds, called "working capital, you should try to implement the company's operations. The company is negotiating capital from sources such as banks. Negotiation sources of financing of working capital may not be - spontaneous sources.If the net operating cycle of a company which means an increased need for further negotiations in working capital.

Calculation of the cycle: The calculation of the cycle contributes to the exact period of WC revenue that is time to convert into cash again? From this calculation, you can see, the period of toilet.

FORMULA resources Holding Period = average. Stocks of raw materials

AVG. Cost of fuel per day

Work in progress, the conversion period = average.work in progress

AVG. Cost of production per day

Finished goods holding period = average. Inventories of finished goods

AVG. Cost of goods sold per day

Receivables and debtor collection period = average. Book debts.

AVG. Credit sales per day

Credit period, the creditors = average. Creditors

AVG. Credit Purchase

LIFE CYCLE

GOC = RM + WIP + FG + D + R

GOC-C = NOC

Where GOV = Gross operating cycle.

NOC = NetCycle

= RM conversion period of raw materials.

C = Available Credit Period

WIP = WIP conversion period

FG = FG holding period

D & R = Detors and period of collection of receivables.

Note

Be taken 360 days a year working on average per day for the calculation.
AVG. means opening + closing / 2
Depreciation is excluded in the calculation of the production and sale, as it is a no-cost fund, and requires no capital.
Permanent and variableWorking Capital

There is always a minimum level of long-term assets, which are continually required by the company to carry out their activities. The minimum level of working capital is designated as a permanent venture capital. It must be the same way as permanent activity of the company. The additional working capital necessary to change the means of production and sale of assets floating or variable or temporary working capital.

Both types of capital,permanent and temporary, are necessary to facilitate the production and sale of the operating cycle.

The estimated working capital needs: working capital needs may be replaced by three different methods, which are estimated to have already successfully applied in practice. They are:

1 Assets Holding Period: To assess the working capital requirements, based on the average period of detention of assets and more than cover the cost of basic experience of business inprevious years. This method is based on the concept of cycle.

2 ratio of sales: For working capital requirements in relation to sales on the assumption that changes in estimates of working capital, with a turnover.

3 ratio of fixed investment: In order to assess the working capital requirements as a percentage of capital formation.

The most appropriate method for calculating the working capital requirements of companies is the concept of the cycle. There are some limitations with all threeApproaches, therefore, several factors determine the choice of method of working capital.

Factors are taken into account seasonal variations in operations, it would be accurate sales forecasts and the variability of the sales prices of investment are generally considered. The production cycle and credit and collection policy of the company would have an impact on requirements for working capital.

The financing of working capital

A company may adopt different measures for the financing of working capital three types of fundingbe used:

1. The long-term financing, such as stocks, bonds, etc.

2. In the short term as the financing of public deposits, commercial papers, etc.

3. Financing refers to the spontaneous automatic short-term sources of funds, etc., which in the ordinary course of business such as trade credit (suppliers) and pending charges

The actual choice of financing current assets is between long-and short-term financing options for long-term. The three approaches to the mixture of longMix and are short-term

1 matching approach: If the company follows the corresponding approach (also known as a method of hedging) will be used to finance long term projects to finance fixed assets and permanent working capital and short-term financing to fund temporary variable capital. The justification for the exact match is that, since the purpose of funding has paid for goods, should the source of funds and assets given up at the same time, so that the funding will beless expensive and inconvenient. However, the exact match is not possible because the uncertainty on the expected life of assets.

2 conservative approach: the politics of funding the company is conservative when it depends more on long-term funds for the necessary funding. Under a Conservative plan to fund the company and their constant demands also a part of temporary current assets with long-term financing. In a time when the company had no need of temporary powerActivities that may in the long-term idle funds are invested in securities to obtain liquidity. The company has a lower risk of lack of funds.

3 aggressive approach: an aggressive approach is called, followed by the companies, if used more short-term financing, as justified by the strategy of correspondence. After an aggressive approach, the company has financed part of its ongoing working capital at short-term financing. Some car companies-finance part of their activitiesShort-term financing, which makes the company more risky.

Management activities: the management of working capital is divided into three parts. They are:

1) The management of cash and cash equivalents.

2) The management of the warehouse.

3) The management of receivables and factoring.

So the basic objective of the WC-management on the current assets, current liabilities of the company in a way that is satisfactory to administer a toilet sustained, ie is neither sufficientmanagement policy or excessive toilet of a company has a great impact on its earnings, liquidity and structural health of the organization.

WC-management is an integral part of the complex of corporate governance. Toilet for the proper management of the financial manager has the following basic functions: --

· Estimated requirement of sanitation.

· Determine the optimal amount of current assets.

· Need Finance toilet.

* Analysis and control of sanitation.

WC ManagementDecision are three-dimensional in nature, namely those decisions are usually there for the ball, or related fields.

· Profitability, risk and liquidity.

· Composition and amount of current activities.

· Composition and level of current liabilities.

PRINCIPLES working capital

There are basically four working capital management. They are presented as follows:

(i) the principle of risk-variant: - The objective of the management of WC is an appropriate bodyTrade between profitability and risk. Risk here refers to the ability to meet its obligations as an honor and when they fall due for payment. Increased investment in the long-term assets will lead to dependence. In the short-term debt increases liquidity, reduces risk and therefore reduces the possibility of gain or loss on the opposite side of the state reserves the right to increase the risk and profitability and liquidity, so there is a direct relationship between risk and profitability and inverseRelationship between liquidity and risk.

(ii) the principle of cost orientation of capital: - The various sources of financing have different costs of capital raising sanitation and the level of risk. In general, the higher costs are lower risk, lower the risk is higher the cost. Sound management toilets should always try to strike a balance between these two.

(iii) the principle of equity position: - This principle is in the planning of the total investments included in current assets. Under thisPrinciple of the amount of toilets in each of these components must be properly covered by a company's capital position should be performed every rupee of net worth of the company to contribute the amount of current assets can be justified be measured using two parameters. They are:

· Active as a percentage of total assets.

· Active as a percentage of total sales.

(iv) the principle of due date for payment: - This principle is in the planning of the source datafunding for the toilet. Under this policy, a company should do it for the flow of funds generated internally in other words, it should be its cash flow in a way that could be easily met on the cash flow or do not relate to to make their plan obligations over time.

REFERENCE

Anand, M. 2001. "The development of working capital business India: an empirical investigation", Management & Accounting Research, vol. 4 (4), pp. 35-65.
Bhalla, VK, "Working CapitalManagement ", Anmol, New Delhi, 2005.
Bhattacharya, Hrishikes, "Working Capital Management: Strategies and Techniques", Prentice Hall of India Products, 2004.
Burns, R. and Walker, J. 1991. "A Survey of Working Capital Policy in the production of small
Companies ", The Journal of Small Business Finance, 1 (1), pp. 61-74
Managmenet Padachi, Kesseven, "Trends in working capital and its impact on business performance: Analysis of Mauritius Workshop", International Review of BusinessResearch Papers, vol. 2, October 2006, P-45-58
Sadri, Sohrab and Tara, Sharukh, N., "Understanding Working Capital Management", Rai Business School, Mumbai, March 25, 2006.

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