Working Capital Financing and Credit Appraisal Essay
The project brings out various aspects of working capital management and the means to get it financed from banks. It starts with explanation of the concept of working capital, description of working capital cycle, management and financing of working capital. This is supplemented by a brief explanation of the working capital financing of M/s Paras Organics Private Limited.
It should be noted that business transactions are generally carried on credit with a number of days elapsing subsequent to the sale being affected for realization of sale proceeds. While part of the raw materials may be purchased on credit, the business would still need to pay its employees, meet manufacturing and selling expenses such as wages …show more content…
* The concept of working capital management was studied from sources like books and internet. The books referred to were Financial Management by Dr. P.C. Tulsian, Banking and Insurance- Law and Practice by ICSI and Total Management by Ratios by Hrishikesh Bhattacharya.
* The information regarding various working capital financing means and guidelines given by RBI for the same has been taken from www.rbi.org.in
* The data used in the project is secondary data. A sanctioned proposal of working capital financing for M/s Paras Organics Pvt. Ltd. by Bank of India, Nerul, was studied.
III. INTRODUCTION TO WORKING CAPITAL
III.A. WORKING CAPITAL MEANING AND SIGNIFICANCE:
Working capital refers to funds required to be invested in the business for a short period usually up to one year. It is also known as short-term capital or circulating capital.
Working capital is required to meet day to day operating expenses and for holding stocks of raw materials, spare parts, consumables, work in progress and finished goods and book debts including debtors’ balances and bills receivable.
Basically, working capital is needed due to the existence of operating cycle. Operating cycle is the duration of time between acquisition of supplies and the collection of cash from receivables.
The operating cycle in a manufacturing firm is shown below:…