Page 20 - DCOM505_WORKING_CAPITAL_MANAGEMENT

Dilfraz Singh, Lovely Professional University Unit 2: Planning of Working Capital

Unit 2: Planning of Working Capital Notes

CONTENTS
Objectives
Introduction

2.1 Types of Working Capital
2.1.1 Gross Working Capital
2.1.2 Net Working Capital

2.2 Operating Cycle
2.2.1 Meaning of Operating Cycle
2.2.2 Significance of Operating Cycle
2.3 Cash Cycle
2.3.1 Meaning of Cash Cycle

2.3.2 Significance of Cash Cycle
2.4 Estimation of Working Capital Requirements
2.4.1 Determinants of Working Capital

2.4.2 Computation of Working Capital
2.5 Liquidity and Profitability
2.6 Summary
2.7 Keywords
2.8 Review Questions

2.9 Further Readings

Objectives

After studying this unit, you will be able to:
Identify the types of working capital

Know the meaning and significance of operating cycle
Discuss the meaning and significance of cash cycle
Explain the estimation of working capital requirements
Describe the liquidity and profitability

Introduction

Cash is the lifeline of a company. If this lifeline deteriorates, so does the company’s ability to
fund operations, reinvest and meet capital requirements and payments. Understanding a
company’s cash flow health is essential to making investment decisions.

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