Module             : FIN 203: Working Capital Management

          Programme                  : B.Com

Credit Value              : 12

Prerequisite               : FIN 201: Introduction to Corporate Finance & Financial Management

General Objectives:

·         Explain working capital and the cash conversion cycle.

·         Describe motives for holding cash.

·         Describe and apply popular cash management techniques.

·         Describe the mechanics of different types of short term borrowings and evaluate their costs.

Learning Outcomes:

Upon the successful completion of this module, student should be able to:

• define working capital and identify its components
• explain the benefit of short-term financial forecasts in the management of working capital

CONTENT

Unit-I:  Principles of Working Capital Management                                                   (8 Hours)

Concept, meaning and importance of working capital, Liquidity Vs. Profitability, Risk – Return Trade Off, Operating and Cash Conversion cycle, Permanent and Variable working capital, demerits of excessive or inadequate level of working capital, Determinants of working capital requirements.

Unit-II: Receivables Management                                                                               (10 Hours)

Credit Policy – Nature and Goals, Credit Policy Variables – Credit Standards, Credit Period, Cash Discount and Collection Efforts, Credit Evaluation, Credit Information, Financial Statement, Bank References, trade References, Market References, Credit investigation & Analysis, analysis of Credit file, Analysis of Financial Ratios, Analysis of Business and Management, Risk Analysis, Credit Granting Decision, Credit Limit, Credit Period, Controlling and Monitoring of Accounts Receivables, Average Collection Period, Aging Schedule, Collection Matrix. Factoring – Mechanics of Factoring, types of Services provided.

Unit-III: Inventory Management                                                                                   (8 Hours)

General Nature and types of Inventories, Need for Inventories, Inventory Management Techniques, Order Quantity- EOQ Model- EOQ Formula, assumptions of EOQ Model, Quantity Discounts and Order Quantity, Re-order Point and Order Point Formula, safety Stock- Pricing of Raw Materials and Valuation of Stocks-FIFO,LIFO, Weighted Average Cost Method, Valuation Methods.

Unit-IV: Monitoring and Control Of Inventories                                                        (7 Hours)

ABC Analysis, Two-Bin System, Just in Time (JIT), System Outsourcing Criteria for judging the Inventory System, Comprehensibility, Adaptability and Timeliness.

Unit-V: Cash Management                                                                                             (7 Hours)

Cash Management Cycle, Motives for Holding Cash, Cash Planning, Cash Forecasting and Budgeting, short term, Long term and sensitivity Analysis.

Unit-VI:  Working Capital Finance                                                                 (10 Hours)

Accrued Expenses and Deferred income, Trade Credit-Credit Terms, Benefit & Cost of Trade Credit. Bank Finance- Forms and Methods, Public Deposits, Inter Corporate Deposits, Commercial Paper, and Certificates of Deposits.

Teaching Strategies

·         Lectures

·         Case studies and Presentations

·         Tutorials

Assessment

·         Two Case Studies                       20%

·         Mid – Semester exam                  30%

·         End – Semester exam                 50 %

                                                                        Total 100%

Essential Texts

1. Financial Management: Ravi M. Kishore

2. Financial Management: P. Chandra

References

1. Financial Management: Khan and Jain

2. Financial Management: I. M. Pandey.