Essay About Methods Of Working Capital Assessment And Cycle Method Drawing Power Method

Methods of Working Capital Assessment – Coursework – Akshat Paliwal
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Methods of Working Capital Assessment
Methods of Working capital assessment Operating Cycle Method Drawing Power Method. Turnover Method.MPBF method (II method of lending) for limits of Rs 6.00 crores and above Cash Budget method  –  Based on procurement and cash inflow) . It is mainly used for Seasonal Industries (Sugar/ Rice Mills/Textiles/Tea/Tobacco/Fertilizers)  Contractors & Real Estate Developers , Educational Institutions, etc.Operating Cycle MethodMeaning of  operating cycle:It begins with acquisition of raw materials and ends with collection of receivables. Stages: 1)Raw materials (RM/RM consumption)2)Work-in-process (WIP/COP)3)Finished Goods (FG/COS)4)Receivables (Debtors/Credit sales)Less: Creditors (creditors/purchases)Example of Operating Cycle:Length of operating Cycle:Procurement of raw material : 30 daysConversion/process time : 15 daysAverage time of holding of finished goods: 15 daysAverage collection period : 30 daysTotal operating cycle : 90 daysOperating cycle in a year : 4Total operating expenses per annum : Rs.60 lacs Total turnover per annum : Rs.70 lacs Working capital requirement : 60/4= 15 lacs Drawing Power (DP) Method :(for units with small limits)Drawing power is arrived at  on the basis of valuation of current assets charged to  the bank in the shape  of hypothecation and  assignment , after deducting the  stipulated marginIllustration:Paid stock – 4   Margin 25% – DP  = 3Semi-finished goods – 4 Margin 50% – DP=2Finished goods -4  Margin 25% – DP = 3Book Debts – 4 Margin 50% – DP = 2Total DP= 10 Turnover Method :(originally suggested by Nayak Committee for SSI units)The WC requirements may  be worked out on the basis of Naik Committee recommendations for working capital limit upto Rs.6 crores from the banking system, on the basis of minimum of 20% of their projected annual turnover for new as well as existing units, beyond which WC be computed on the basis of WC cycle, after fixing stipulated margins , on each component of the WC. In case of borrowers desiring facilities under Naik Committee recommendations and having a WC cycle of more than 3 months in a year, the WC requirements will be funded after assessing his requirements on the basis of his WC cycle, after fixing proper margins.

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(2015, 08). Methods of Working Capital Assessment. EssaysForStudent.com. Retrieved 08, 2015, from
“Methods of Working Capital Assessment” EssaysForStudent.com. 08 2015. 2015. 08 2015 < "Methods of Working Capital Assessment." EssaysForStudent.com. EssaysForStudent.com, 08 2015. Web. 08 2015. < "Methods of Working Capital Assessment." EssaysForStudent.com. 08, 2015. Accessed 08, 2015. Essay Preview By: Akshat Paliwal Submitted: August 3, 2015 Essay Length: 498 Words / 2 Pages Paper type: Coursework Views: 535 Report this essay Tweet Related Essays Working Capital Management Worksheet Working Capital Management Concepts Worksheet Concept Application of Concept in the Simulation Reference to Concept in Reading Cash Conversion Cycle Lawrence Sports had to borrow 791 Words  |  4 Pages Working Capital Working Capital and Financial Environment paper Target Corporation, Wal-Mart Stores, Inc Working Capital and Financial Environment Paper The purpose of this paper is to 783 Words  |  4 Pages Mba 550 - Working Capital Management Worksheet Assignment MBA/550 Working Capital Management Worksheet Assignment Week 1 The first week’s assignment focuses on creating a worksheet you can use in planning to gain knowledge 418 Words  |  2 Pages Mba 550 - Working Capital Management Concept Worksheet Working Capital Management Concepts Worksheet Concept Application of Concept in the Simulation Reference to Concept in Reading Lawrence focuses on one of the four principal 746 Words  |  3 Pages Similar Topics Sc Johnson Work Life Balance Working Capital Management Concepts Worksheet Get Access to 89,000+ Essays and Term Papers Join 209,000+ Other Students High Quality Essays and Documents Sign up © 2008–2020 EssaysForStudent.comFree Essays, Book Reports, Term Papers and Research Papers Essays Sign up Sign in Contact us Site Map Privacy Policy Terms of Service Facebook Twitter