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MS-41 Solved Assignment Working Capital Management

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  • Version: 2016 Jan - June

Soft Copy: Yes

Q. Collect the Financial Statements of any two firms from the same industry for 2014-2015 and calculate their Efficiency, Liquidity and Structural Ratios. Based on these ratios give your views on the working capital management of these firms.

Q. The Ratan Corporation sells goods earning a gross profit of 25% on sales. You are required to prepare a Statement showing the Working Capital requirement of the company adding 10% margin for contingencies from the annual figures given below : Sales Materials used Wages Manufacturing Expenses Administrative and other Expenses Selling and Distribution Expenses Depreciation Income Tax Payable in four installments of which one falls in the next financial year Rs. 3,00,000 1,08,000 96,000 1,20,000 30,000 18,000 12,000 60,000
Additional Information is as follows:
- Credit given by suppliers of materials is 2 months
- Credit allowed to customers is 1 month
- Wages are paid half month in arrear
- Manufacturing and administrative expenses are paid one month in arrear
- Selling and distribution expenses are paid quarterly in advance
- The company wishes to keep one month stock of raw material and also of finished goods - The company believes in keeping cash of Rs. 50,000 including the overdraft limit of Rs. 20,000 not yet utilized by the company.
Answer. .........

Q. Why are the Letters of Credit (LCs) known as non fund based working capital finance and what role do they play in facilitating trade?

Q. Is it right to say that the LCs do not involve any financial obligation or risk on the part of the issuing banker? Give your comments.

Q. What do you mean by ‘Short Term Integrated Funds Planning’? Discuss whether this planning is really practiced in the corporate world in India.
Answer. ......

Q. Identify the major players in the Indian Money Market. Discuss the major hurdles they face in their operations.
Answer. ......

MS-41 Solved Assignment IGNOU MBA

This page is dedicated to IGNOU Master of Business Administration (MBA) MS-41 Working Capital Management Solved Assignment. You can download IGNOU MBA MS 41 Solved Assignments of Jan - June 2016 here.

Old Sample Answer

Q. What is Working Capital?
Answer. Working capital is a measure of a company's current assets less its current liabilities........... The management of working capital is a crucial element of cash flow management......
Managing working capital is essential for success, as the ability to avoid a cash crisis and pay debts as they fall due depends on managing
Receivables, through effective credit approval, invoicing, and collection activity
Inventory, through effective ordering, storage, and identification of inventory Payables, by negotiation of trade terms and through taking advantage of prompt-payment discounts
Cash, by effective forecasting, short-term borrowing, and/or investment of surplus cash where possible
The working capital cycle works (at least in theory) as follows: a firm will purchase inventory (either as finished goods or as raw materials) on credit from its suppliers (appearing as creditors in the working capital)...... After production has taken place the finished goods will be sold on to customers as either cash or credit sales (now appearing as trade receivables in the working capital)........... The firm will eventually receive the cash from these credit customers, which in turn can then be used to settle the amounts owing to the credit suppliers as well as any other obligations it has run up during this period, such as wages and other expenses..........
A firm will wish to minimize the length of its working capital cycle. The longer a firm holds inventories and the longer a firm takes to collect cash from its customers in respect of credit sales, the more likely a firm will face liquidity problems........ Therefore a firm will want to minimize the time cash is tied up in working capital, so as to avoid potential difficulties with cash flow.
The working capital cycle (also known as the firm’s operating cycle) can also be measured in terms of the time taken for money to pass through each stage of the working capital. The operating cycle for its working capital will consist of the following timings for cash being tied up in the various stages of the working capital cycle.........
The objective of working capital management by all the firms is to provide enough liquidity so that production process continues smoothly during the normal course of the business.......... Further, the focus is to maintain an optimum level of current assets so that funds of the firm do not remain unnecessarily idle.......... The finance manager aims at efficiently managing the current assets and liabilities to meet the firm’s working capital requirement. Inefficient working capital management may lead to higher cost of funds and may increase the risk profile of the firm.

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