Working Capital Management Approaches

Prof. P.N. Varshney of IGNOU has communicated the topic of Working Capital Management Approaches with his 41 minutes lecture. I watched this lecture and I learned following things relating to this topic.

Prof. told that Many organisation fail due to shortages of working capital. Working capital is needed for initial investment and other for day to day expenses. Initial investment means that working part of working capital which is required for buying fixed assets. Other working capital is needed for paying expenses and other current liabilities. That net working capital can be calculated by taking difference between current asset and current liabilities. But first problem is how to estimate this net working capital?

Now for studying best working capital management approach, we have to see different following issues.

1. Which source is best for  our working capital?

2. Is it timely available?

Following factors affect our working capital. :-

a )  Level of production

b) Duration of operation cycle.

For example, newspaper vendor can collect cash after one month, so he need more working capital than a vegetable vendor.

c) Minimum balance of cash

In this WCM approach, we should have minimum balance of cash for facing any emergency.

d) Cost of raw material

Cost of raw material  also affects the level of working capital.

e) Cost of work in progress

It also affects  the level of working capital. For knowing more about working capital management approaches, we recommend to see following video.

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Accounting Education: Working Capital Management Approaches
Working Capital Management Approaches
Accounting Education
http://www.svtuition.org/2011/01/working-capital-management-approaches.html
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