Working Capital Financing and Credit Appraisal
I. EXECUTIVE SUMMARY
The project brings out various aspects of working capital management and the means to get it financed from banks. It starts with explanation of the concept of working capital, description of working capital cycle, management and financing of working capital. This is supplemented by a brief explanation of the working capital financing of M/s Paras Organics Private Limited. It should be noted that business transactions are generally carried on credit with a number of days elapsing subsequent to the sale being affected for realization of sale proceeds. While part of the raw materials may be purchased on credit, the business would still need to pay its employees, meet manufacturing and selling expenses such as wages, power, suppliers, transportation and communication and the balance of its raw material purchases. Working capital refers to the source of financing required by business on a continual basis for meeting these needs.
The faster a business expands, the more cash it will need for working capital investment. The cheapest and best sources of cash exist as working capital right within the business. Sound management of working capital will generate cash which will improve profits and reduce risks. The cost of providing credit to customers and holding inventories can represent substantial proportion of the total profits of a firm.
The investment in raw materials, work-in-progress, finished goods and receivables often varies a great deal during the course of the year. Typically, current assets are supported by a combination of both short-term and long-term sources. Hence, a prudent financial planning and forecasting must be done with great acumen.
II. OBJECTIVE AND METHODOLOGY II.A. OBJECTIVE: * To study the concept of working capital and the means of management of working capital including cash, inventory and receivables.
* To understand the process of assessment of working capital requirement by banks and various
The project brings out various aspects of working capital management and the means to get it financed from banks. It starts with explanation of the concept of working capital, description of working capital cycle, management and financing of working capital. This is supplemented by a brief explanation of the working capital financing of M/s Paras Organics Private Limited. It should be noted that business transactions are generally carried on credit with a number of days elapsing subsequent to the sale being affected for realization of sale proceeds. While part of the raw materials may be purchased on credit, the business would still need to pay its employees, meet manufacturing and selling expenses such as wages, power, suppliers, transportation and communication and the balance of its raw material purchases. Working capital refers to the source of financing required by business on a continual basis for meeting these needs.
The faster a business expands, the more cash it will need for working capital investment. The cheapest and best sources of cash exist as working capital right within the business. Sound management of working capital will generate cash which will improve profits and reduce risks. The cost of providing credit to customers and holding inventories can represent substantial proportion of the total profits of a firm.
The investment in raw materials, work-in-progress, finished goods and receivables often varies a great deal during the course of the year. Typically, current assets are supported by a combination of both short-term and long-term sources. Hence, a prudent financial planning and forecasting must be done with great acumen.
II. OBJECTIVE AND METHODOLOGY II.A. OBJECTIVE: * To study the concept of working capital and the means of management of working capital including cash, inventory and receivables.
* To understand the process of assessment of working capital requirement by banks and various
Bibliography: * Financial Management by Dr. P.C. Tulsian * Banking and Insurance – Law and Practice by ICSI * Total Management by Ratios by Hrishikesh Bhattacharya * www.rbi.org.in * www.bankofindia.com