WORKING CAPITAL MANAGEMENT-II
Chapter notes, video classes, MCQ practice tests and quick-revision one-liners for Accounting and Financial Management for Bankers — JAIIB.
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What is the primary objective of working capital management?
The primary objective is to ensure that a firm maintains sufficient liquidity to meet its short-term obligations while minimizing the cost of holding excess current assets.
What is the Maximum Permissible Bank Finance (MPBF) under Tandon Committee Method I?
75% of the working capital gap after deducting NCA.
What does the operating cycle concept imply in working capital management?
The operating cycle represents the time taken to convert raw materials into cash through production and sales, and a longer cycle implies higher working capital requirements.
What is the minimum Net Working Capital (NWC) stipulated under Tandon Method II?
At least 25% of total current assets must come from NWC.
How is the Net Operating Cycle (NOC) calculated?
NOC = Raw Material Storage Period + Work-in-Progress Period + Finished Goods Storage Period + Debtors Collection Period – Creditors Payment Period.
What is Tandon Committee Method III of working capital financing?
Bank finances only hard-core working capital needs separately.
What is the Tandon Committee's approach to working capital financing?
The Tandon Committee recommended three methods (Methods I, II, and III) for calculating Maximum Permissible Bank Finance (MPBF), with Method II being the most widely adopted by banks.
What is the formula for calculating the Operating Cycle period?
Raw material days + WIP days + FG days + Debtor days minus Creditor days.
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