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Working Capital 159
(iv) Credit period allowed to debtors:
Average total of outstanding debtors
Average credit sales per day
=
480
16,000 × 365
=
365 × 480
16,000
= 11days
Total operating cycle period: (i) + (ii) + (iii) + (iv) = 44 days
Number of Operating cycles in a year = 365/44
= 8.30
Amount of Working Capital required =
Total operating cost
Number of operating
cycles in a year
= 10,500/8.3
= Rs. 1,265
Alternatively, the amount of working capital could have also been calculated by
estimating the components of working capital method, as shown below:
Value of Average Stock Maintained 320
Raw Material 350
Work-in-progress 260
Finished Goods 480
Average Debtors Outstanding: 1,410
Less: Average Creditors Outstanding 145
1,265
WORKING CAPITAL MANAGEMENT POLICY
Working Capital Management formulates policies to manage and handle efficiently; for
that purpose, the management established three policies based on the relationship between
Sales and Working Capital.
1. Conservative Working Capital Policy.
2. Moderate Working Capital Policy.
3. Aggressive Working Capital Policy.
1. Conservative working capital policy: Conservative Working Capital Policy refers
to minimize risk by maintaining a higher level of Working Capital. This type of
Working Capital Policy is suitable to meet the seasonal fluctuation of the
manufacturing operation.