MS – 41: Working Capital Management

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MS – 41: Working Capital Management

ASSIGNMENT

Course Code :                                           MS-41

Course Title :                                            Working Capital Management

Assignment No. :                                      MS-41/TMA /SEM-I/2016

Coverage :                                                 All Blocks

Question 1: Collect the Financial Statements of any two firms from the same industry for 2014-2015 and calculate their Efficiency, Liquidity and Structural Ratios. Based on these ratios, give your views on the working capital management of these firms.

Solution: Financial statements are valuable summaries of financial activities because they can organize information and make it easier and clearer to see and therefore to understand. Each one—the income statement, cash flow statement, and balance sheet—conveys a different aspect of the financial picture;

Question 2: The Ratan Corporation sells goods earning a gross profit of 25% on sales. You are required to prepare a Statement showing the

Working Capital requirement of the company adding 10% margin for

contingencies from the annual figures given below:

	Rs.
Sales	3,00,000
Materials used	1,08,000
Wages	96,000
Manufacturing expenses	1,20,000
Administrative and other expenses	30,000
Selling and distribution expenses	18,000
Depreciation	12,000
Income tax payable in four instalments of
which one falls in the next financial year	60,000

Additional Information is as follows:

¾        Credit given by suppliers of materials is 2 months

¾        Credit allowed to customers is 1 month

¾        Wages are paid half month in arrear

¾        Manufacturing and administrative expenses are paid one month in arrear

¾        Selling and distribution expenses are paid quarterly in advance

¾        The company wishes to keep one month stock of raw material and also of finished goods

¾        The company believes in keeping cash of Rs. 50,000 including the overdraft limit of Rs. 20,000 not yet utilized by the company.

Solution: Calculation of working capital requirements

	(A) Current Assets									Rs.
			225000 ∗	1
	Debtors at cost (1 month)	225000								18750
				12

Question 3: (a) Why are the Letters of Credit (LCs) known as non fund based working capital finance and what role do they play in facilitating trade?

Solution: Letters of Credit (LCs) known as non fund based working capital finance

because Letter of credit and bank guarantee has a very thin line of difference. Bank guarantee is revoked and bank makes payment to the holder in case of non performance of the opposite party whereas

(b) Is it right to say that the LCs do not involve any financial obligation or risk on the part of the issuing banker? Give your comments.

Solution: It is not right to say that the LCs do not involve any financial obligation or

risk on the part of the issuing banker because Letter of Credit is generally required when the seller of goods and services deals with unknown parties or otherwise feels the necessity to safeguard his interest. Under such circumstances, he asks the buyer to arrange a letter of credit from his banker. The banker issuing the L/C commits to make payment of the amount mentioned therein to the seller of the goods

Question 4: What do you mean by ‘Short Term Integrated Funds Planning’? Discuss whether this planning is really practiced in the corporate world in India.

Solution: Short Term Integrated Funds Planning

The term financial meaning means different things to different managers. It depends upon the nature, size and organizational structure. In general terms, financial planning mainly involves anticipating the impact of operating and financial policies on the future financial position of the organization and formulating appropriate responses in the light of the same.

Question  5:  Identify  the  major  players  in  the  Indian  Money  Market.

Discuss the major hurdles they face in their operations.

Solution: Major players in the Indian Money Market

A money market is a market for borrowing and lending of short-term funds. It deals in funds and financial instruments having a maturity period of one day to one year. It is a mechanism through which short-term funds are loaned or borrowed and through which a large part of financial transactions of a particular country or of the world are cleared.

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