Colgate Segmentation Essay Example for Free

Colgate Segmentation Essay image of Working groovy Working chapiter refers to short-term funds, need to meet operating expenses. It refers to the funds to pay its day-to-day operations. It is concerned with catamenia assets and ongoing liabilities. If a firm cant bear on a satisfactory level of running(a) capital, it may become insolvent or bankrupt. Broadly there atomic number 18 2 concepts of operative capital, such as 1. Gross Working Capital (Quantitative Concept) 2. Net working Capital (Qualitative Concept) Both these concepts of working capital have operational significance.The two concepts are not mutually exclusive. The stark(a) concept emphasizing the use and the net concept emphasizes the source. 1. Gross Working Capital The center current assets are termed as the gross working capital. It is also known as quantitative or circulating capital. It refers to firms investment in short term assets such as funds, sellable securities, accounts receivables, prepa id expenses, inventories etc. Significance a. Optimum investment in current assets. - unequal to(predicate) working capital leads to insolvency and excessive will lead to less profitability.Financing of current assets. - If funds arise it should be invested in short term securities, dont keep it dotty. 2. Net Working Capital The excess of current assets over current liabilities represents net working capital. It may be positive or negative. Net working capital indicates the liquidity of the business. Significance a. stateing Liquidity Position- afoot(predicate) assets help in meeting financial obligations. for the most part for every one rupee of current asset there should be one rupee of current liability. b. Extent of long term capital n financing current assets- If there are Rs hundred thousand current assets and Rs 75000 current liabilities then NWC is Rs 25000, and it supposed to be financed from long term funds.Efficient give carement of working capital involves control over the current assets and current liabilities, which are the main components of working capital. 1. Components of current assets Currents assets are those, can be converted into cash within a year. It consists of cash, marketable securities, inventories, debtors, prepaid expenses. 2.Components of current Liabilities Current liabilities are those to be paid in a year. It consists of creditors, short-term borrowings, taxes and proposed dividends. To ensure optimum investment in current assets. To ensure adequate flow of funds for current operations. To speed up the flow of funds. Maintain liquidity and profitability. Maximize shareholders wealth possible only when there is sufficient return. Discharge day-to-day liabilities. cherish the business from adverse effects in emergencies. Determines the relevant levels of current assets and their efficient use. To sustain sales activity. gross revenue dont convert into cash immediately. It needs time to collection of cash.For maximiz ation profits or minimize working capital cost and maintain balance between liquidity and profitability, we need to maintain a balance in working capital. It should not be excessive or inadequate. Firm should manage adequate working capital to run its business immoderate working capital means idle funds which earns no profit. Inadequate working capital disturbs production and weakens the firms profitability.Danger of Excessive Working Capital It results in unnecessary accumulation of inventories, which lead to mishandling like waste, theft and losses. It is indication of spoiled credit policy and slack collection period. This leads to higher bad debts that reduce profits. It makes managerial inefficiency. Accumulation inventories execute to make speculative profits grow. This type of speculation makes the firm to follow liberal dividend policy and tight to cope up with in future when the firm is unable to make speculative profits. Danger of Inadequate Working Capital It de clines growth because its difficult to undertake profitable projects for non-availability of working capital. Difficult to hold operating plans and achieve firms target. Difficult to meet day-to-day commitments. Inefficient utilization of firm assets. The firm unable to avail attractive credit opportunities. Firm loses its reputation.The continuing flow from cash to suppliers to line to accounts receivables and back into cash is operating cycle. 1. operate cycle for manufacturing firm Stock of raw material is held in order to ensure smooth production. Similarly stock of finished goods has to be carried out to meet the demand. 2. Operating Cycle of a Non-manufacturing Firm Non-manufacturing firms are wholesalers, retailers, service firms. They will have the direct conversion of cash into finished goods and into cash.