WORKING CAPITAL ASSESSMENT

PRESENTED BY
A.F. MD. ANWARUL AZIM
SENIOR PRINCIPAL OFFICER
CORPORATE INVESTMENT DIVISION
HEAD OFFICE
 WHAT IS WORKING CAPITAL
Working Capital is the measure of cash and liquid
assets available to fund a company's day-to-day
operations.
The capital of a business that is used in its day-to-
day trading/production operations, calculated as the
Current Assets minus the Current Liabilities.
FINALLY : SHORT TERM FUNDS REQUIRED
TO ACQUIRE CURRENT ASSETS TO ENABLE
THE BUSINESS/INDUSTRY TO OPERATE AT
THE EXPECTED LEVEL.
 SOURCES OF WORKING CAPITAL
Short Term Sources of Working Capital Financing
Retained earnings
bank loans and advances
Invoice Discounting
Income received in advance
Advances received from customers
Credit from suppliers
Proceeds from sale of assets
Factoring
Commercial Papers
Letter of Credit
Guarantee
Long Term Sources of Working Capital Financing
Share, Debenture
long-term loans from financial institutions
 FACTORS AFFECTING THE WORKING CAPITAL

Nature of Business
Length of Operating Cycle [days]
Operating Cycle Fluctuation
Scale of Operation &Operating Efficiency
Seasonal Factors [foods grains, cotton, jute, potato]
Technology and Production Cycle
Credit Allowed & Credit Avail [over/under financing]
Availability of Raw Materials
[procurement/availability]
Level of Competition [may need to give advance/long
time receivables]
Inflation
Growth Prospects [demand may increase]
 METHODS OF WORKING CAPITAL ASSESSMENT

Current Asset & Current Liability Method

Tied-up Period & Operation Cycle Method
Annual Turnover Method
Tied-up Period & Operation Cycle Method
Capacity utilization is needed to assess WC
Capacity utilization varies from industry to industry
Spinning Mills run at higher capacity (90% & above)
Appropriate capacity utilization to be considered
Tied-up periods for various activities are needed to
assess WC
Appropriate tied-up period for various activities to be
considered
OPERATING CYCLE

Time taken between

Cash outlay &
Cash realization
through sale of finished
goods & realization of
receivables is known
as length of
Operating Cycle
 TIED-UP PERIODS & OPERATION CYCLE

Tied-up Period (days)

Item Spinning Spinning RMG Jute Feed Rice Mill
(export) (local) (export) Mill
LC / BBLC 60 60 30 - 30 -
Imported Material 90 90 30 - 30 -
Local Material 30 30 60 270 15 45
Work in Process 5 5 30 5 2 3
Finished Goods 15 7 10 15 7 15
Receivables 120 15 20 15 30 20
Store & Spares 60 60 - 60 - 60
 WORKING CAPITAL ANALYSIS
[EXPORT ORIENTED RMG]
Item Tied-up Capacity Utilization (%)
(day)
100 80 70
Raw Material (LC) 30 56.2 45.0 39.3
Raw Material (Inventory) 30 56.2 45.0 39.3
Accessories (Inventory) 60 42.1 33.7 29.5
Working in Process 30 125.7 100.6 88.0
Finished Goods 10 41.9 33.5 29.3
Receivables 20 83.8 67.0 58.7
Total 180 405.9 324.8 284.1
Less Clients equity (0%) 0 0 0
Net Requirement 406 325 284
 WORKING CAPITAL ANALYSIS
[EXPORT ORIENTED RMG]
Assumptions:
Knit Garments (30-line):
Yarn Required (2.5 kg/dz):
Price of Yarn:
Yarn Cost (7500*3.2*78):
Accessories (US$ 3/dz):
Exchange Rate:
Wages & Salaries:
Fuel & Gas:
Knitting Charge (Tk. 15/kg)
Dyeing Charge (US$ 1.6/kg)
WIP= (56.2+21.06+15+2+(0.112+0.936)*30
36,000 pcs/day
7,500 kg
US$ 3.2 per kg
Tk. 1.872 million/day
Tk. 0.702 million/day
Tk. 78/US$
Tk. 15 million/month
Tk. 2.00 million/month
Tk. 0.112 million/day
Tk. 0.936 million/day
Tk. 125.7 million/day

The assessment requires to extract actual and authenticated data to

calculate WC. Remember, to assess the real requirement of the project, you
will require to reach into the heart of the business. Consider yourself wearing
the shoes of the key person of the business.
Avg. Capacity Utilization of Different Industries

Industry Standard Industry Standard

Utilization % Utilization %
Spinning Mill 90 & above Flour Mill 40 70
Textile Weaving 70 80 Auto Rice Mill 40 70
Textile Knitting 70 - 80 Steel Mill 40 70
Composite Knit 70 80 Cement Industry 60 70
Dyeing & Finishing 60 70 Jute Mill 70 80
Garments Industry 70 80 Paper Mill 70 80
Cold Storage 50 60 own Ceramic Industry 78 80
Feed Mill 60 - 70 Pharmaceuticals 40 - 60
 Keep in mind while processing a
Proposal for Working Capital Investment
Findout the production capacity & process
Findout the bottleneck of the production line
List the raw materials required and sources
Availability of raw materials & procurement process
Inventory Management [how long they lock cash?]
While enhancement of WC, consider Investment and
Current A/c. Turnover
Thing about the Modes of Investment [Funded/Non-
Funded]
Try to adjust the liabilities on 180 days basis
For Special WC Limit, consider +1% Rate of Return