Q. Show the Working Capital Forecasting Techniques?
Working Capital Forecasting Techniques or else Computation Of Working Capital: - A number of processes are used to determine working capital needs of a business. The significant among them are:
Operating Cycle Method: - Operating cycle is the time duration the firm requires in the purchase of raw materials and conversion of raw materials into work in progress and finished goods and conversion of finished goods into sales and in collecting cash from debtors. Larger the time duration of operating cycle tends to larger the investment in current assets. Therefore time period of every stage of operating cycle is estimated and then working capital needed in each stage is computed on the basis of cost of every item.
A certain percentage for contingencies may as well be added to the above estimates to determine the working capital requirement.