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Unit 10: Working Capital Management
However, RBI permits banks to follow Tandon/Chore Committee guidelines and retain MPBF Notes
concept with necessary modifications.
The cash budget approach has been widely criticized for its shortcoming like:
It does not disclose the extent of changes in various current assets or current liabilities of profit.
It does not keep track the movement of assets and liabilities. Secondly, earlier the RBI has
prescribed overturn arrangements for financing working capital beyond 50 crores. Now it is
not essential to have consortium arrangements. However, banks may lend from consortium so
as to spread the risks.
Task Why does an increase in the ratio of current to total assets decrease both profits and
risk as measured by net working capital?
Self Assessment
Fill in the blanks:
13. The Dehejia Committee suggested that the banks should make an appraisal of credit
applications with reference to the …………...financial situations of the client.
14. The ………………….had appointed various committees to ensure equitable distribution
of bank resources to various sectors of economy.
15. The …………..was scrapped in order to facilitate need-based working capital without
sticking to age-old policies
Case Study Case: Management
r. Bhatt is a young man of bright ideas. Although he is employed as an engineer
in one of the large engineering concerns in Lahore (Pakistan), he spends all his
Mspare time developing new products in his private laboratory at home.
Currently, he has commercially provided a domestic appliance called Lavex, which would
be a great convenience kitchen to help housewives. He is not interest in manufacturing
and selling his new products; his only interest in developing new products is to make
money by way of selling patent rights to some established concerns. However, he releases
that till he succeeds in selling the patent rights at the price he expects, he has to manufacture
and sell the new products on ad hoc basis so as to demonstrate the commercial superiority
of his products and thereby, to induce the parties to buy the patents from him. With this
objective, he is currently thinking of manufacturing and selling ‘Lavex’. He will not give
up his full-time job; he will supervise and guide ‘Lavex’ production and sales during his
spare time.
Bhatt has already spent 30,000 in developing the product. He proposes to buy the
component from other parties and keep the production activity to a minimum. The
minimum equipment required would cost 11,000. He would need to rent a small place
for 1,200 per month for production. He proposes to use his residence as office for sales
activity.
Contd...
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