Turnover of Inventories: working capital level is 40% of sales, the next year estimation is done based on this estimate. In other The working capital, thus secured in due course, is classified as – seasonal working capital in India. Don’t confuse short-term working capital needs and longer-term, permanent requirements; While it can be tempting to use a working capital line of credit to purchase machinery or real estate or to hire permanent employees, these expenditures call for different kinds of financing. In other words, every firm finds it difficult to ascertain the Working Capital requirements which are a very practical and important problem. 6. Seasonal Variations: The seasonal enterprises, i.e., the enterprise whose operations pick up seasonally may require more working capital to meet their increased operations during the particular season. (a) Seasonal Working Capital: The working capital required to meet the seasonal needs of the industry or business is known as seasonal working capital. Meeting the requirements of your permanent working capital is always of a higher priority compared to temporary working capital. It is essential to estimate the working capital requirements of a project to ensure smooth project implementation. Working capital forecasting is a difficult task. The working capital requirements of a project consists of – Raw materials and Components; Stock of Work in Progress Regular Working Capital: Mostly, this particular type can be described as the minimum working capital that has to be maintained by a firm under normal circumstances. If the expected sales are 500 million dollars, 200 million dollars would be required as working capital. 5. 2. It’s important to note that the amount of net working capital required to run your business fluctuates over time, especially when your business is seasonal. You are required to prepare a statement of working capital requirements, a forecast Profit and Loss Account and Balance Sheet of the company assuming that: Working Notes: Profits have been ignored while preparing working capital requirements for the following reasons: (i) Profits may or may not be used for working capital. Not all temporary working capital needs are the result of seasonal … If it is constantly coming near say 40% i.e. For example, during the holiday season a retail business may require additional funds to pay for extra inventory and additional staff. Permanent Working Capital: This refers to that minimum amount of investment in all current assets which is required at all times to carry out minimum level of business activities. Businesses may require additional working capital only at some points during the year. The reason is that the total current assets requirements should be forecasted in estimating the working capital requirements.Working capital forecasting is based on the overall financial requirements and financial policies of the concern. For example, if an enterprise is marketing woolen garments, it needs more money for that purpose during winter months than in summer season. Temporary or Variable Working Capital (a ) Seasonal Working Capital (b ) Special Working Capital 1. Typically a business that is off season requires more of a net working capital reserve to cover its operational costs, when less money is coming into the business. This creates a need for working capital to fund the resulting inventory and accounts receivable buildup. For estimating, a relationship of sales and working capital is worked out for say last 5 years. 9. 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