Tribhuvan University
Faculty of Management
Office of the Dean
Bachelor of Business Administration (BBA)
Course Objective
:The course aims to provide the students with the basic understanding of concepts, tools and techniques of working capital management and develop skill to apply them in real life situations with special reference to corporate entities of Nepal.
Course Description
:The course deals with nature and sources of working capital, working capital policies and how firms choose working capital investment and financing policies. The course also deals with the management of the components of working capital - cash and marketable securities, receivables and inventories.
Course Contents:
Lecture hours show the approximate classroom time allocated to each unit.
Unit 1.Introduction
- Concept and nature of working capital
- Types of working capital
- Components of working capital
- Importance of working capital
- Determinants of working capital
- Concept of working capital management
- Importance of working capital management
- Issues in working capital management
- Management of working capital in Nepal.
Unit 2.Working Capital Policy
- Overview of working capital policy
- Risk-return tradeoff in working capital management
- Working capital investment and financing policies: alternative current assets investment polies-restricted, relaxed and moderate policies
- alternative current financing policy- maturity matching or self-liquidating, aggressive and conservative approaches
- Choosing working capital investment and financing policy.
Unit 3.Working Capital Planning and Control
- Overview of working capital planning and control
- Concept of working capital cash flow cycle
- Computation of cash conversion cycle
- Determination of working capital
- Working capital management ratios: ratios measuring liquidity, structure, and efficiency
- Working capital and inflation.
Unit 4.Cash and Marketable Securities Management
- Overview of cash and marketable securities management
- Motives for holding cash
- Advantages of holding adequate cash and near-cash assets
- Cash management techniques: cash flow synchronization, check clearing process, using float, acceleration of receipt, disbursement control, transfer mechanism
- Matching the cost and benefits of cash management
- Cash planning and forecasting: preparation of cash budget
- Determining the optimum cash balance under certainty: Boumol’s model
- Optimum cash balance under uncertainty: Miller–Orr model
- Meaning and characteristics of marketable securities
- Rational for holding marketable securities
- types of marketable securities
- Criteria for selectingmarketable securities.
Unit 5.Receivable Management
- Overview of receivable management
- Significance of receivable management
- Role of credit manager
- costs of maintaining receivables
- Accumulation of receivables
- Credit policy: credit standard, cash discount, credit standard, collection policy
- Other factors influencing credit policy
- Monitoring accounts receivables: days’ sales outstanding and aging schedule
- Role of the credit manager
- Analyzing the changes in the credit policy variables.
Unit 6.Inventory Management
- Overview of inventory management
- Types of inventory
- Need to hold inventories
- Significance of inventory management
- Determining the inventory investment
- Inventory cost: carrying cost, ordering costs, total inventory costs
- The optimum order quantity: economic order quantity
- reorder point, reorder point, safety stock and goods in transit
- Inventory control system: ABC system
- JIT system
- Computerized system, Outsourcing.
Unit 7.Working Capital Financing
- Nature of working capital financing
- Short-term versus long-term financing
- Sources of short term financing: accruals, trade credit, bank loan, commercial papers, accounts receivable financing (pledging and factoring), inventory financing (floating lien, chattel mortgage, trust receipt loan and warehouse financing)
- Cost of sources of short-term financing
- Factors to be considered in working capital financing.
Suggested Readings:
Besley, S. & Brigham, E. F. Essentials of managerial finance. New York: Harcourt Brace CollegePublishers. Ross, S. A., Westerfield, R. W. & Jordon, B. D. Fundamentals of corporate finance. New Delhi: TataMcGraw Hill. Van Horne, J. C. & Wachowich, J. M. Fundamentals of financial management. New Delhi: Prentice Hall Inc. Bhalla, B. K. Working Capital Management. New Delhi, S Chand and Company Limited