ASSIGNMENT ON WORKING CAPITAL MANAGEMENT

2 TABLE OF CONTENT

Pg no.

Company Profile

3

Working Capital Management

4

Meaning

Factors Affecting working capital

Working capital cycle

Working capital management

6

Kinds of Working capital

8

Inventory management at Dlf

13

Methods used for inventory control

15

Cash management at dlf

15

3 Receivable management at dlf

16

Key working capital ratios

17

Interpretation of ratios

19

Calculation of working capital

24

Current asset holding period

Ratio to sales

Ratio to fixed investment

WORKING CAPITAL MANAGEMENT

For

DELHI LAND AND FINANCE

(DLF)

DLF Limited or DLF (Delhi Land and Finance) is the India's biggest real estate developer based in New Delhi, India. The DLF Group was founded by Raghuvendra Singh in 1946. DLF developed residential colonies in Delhi such as Shivaji Park ( which was actually its first one), Rajouri Garden, Krishna Nagar, South

4Extension, Greater Kailash, Kailash Colony and Hauz Khas. In 1957, with the passage of Delhi Development Act, the local government assumed control of real estate development in Delhi and banned private real estate developers.

As a result DLF began acquiring land at relatively low cost outside the area controlled by the Delhi Development Authority, in the district of Gurgaon, in the adjacent state of Haryana. In the mid-1970s, the company started developing DLF City project at Gurgaon. Its upcoming planinclude hotels, infrastructure and special economic zones-related development projects.

In this report I have highlighted the (working capital management of DLF), focusing on different components of working capital like, cash management, inventory management etc. Various necessary ratios have been calculated in order to analyze the financial stability of the company.

Thereafter the working capital requirement of overall DLF has been calculated. After that analysis of working capital has been done.

WORKING CAPITAL MANAGEMENT

(WORKING CAPITAL (DEFINITION)

Working capital refers to the funds invested in current assets i.e.

sundry debtors, inventories, cash & bank balance and other current

assets. In other words, the fund requires supporting day to day

5operations such as purchase of raw materials, payments of wages

and defraying other expenses for operations

FACTORS AFFECTING WORKING CAPITAL REQUIREMENTS

Nature of business: The nature of business influences to a great

extent the amount of working capital to be required to run the

business.

Size of business: Large business requires large amount of

working capital than a small business where operations are

relatively less, though they engaged in the same type of business

operations.

Production policy: The need for working capital will vary

according to production plans.

Operating efficiency: Optimum utilization of resources at

minimum costs as a result of which profitability increases. It helps

in increasing generation of internal funds which reduces the

pressure on working capital.

Credit policy: The credit policy of the firm also determines the

working capital requirement.

Supply of raw materials: If supply of raw materials is regular

then there is no necessary to maintain a huge level of inventory &

no blocking of working capital unnecessarily.

6Market Conditions: Working Capital requirements are also

affected by market conditions like degree of competition.

Condition of supply: The inventory of raw materials, spares and

stores depends on the conditions of supply.

Dividend Policy: Dividend policies affect Working Capital.

Growth and Expansion: Growth and expansion of a firm

requires adequate working capital.

Abnormal Factors: Working Capital requirement is also affected

by the abnormal factors like strikes, lockout, inflationary

conditions etc.

1. Working Capital Cycle

Cash flows in a cycle into, around and out of a business. It is the

business's life blood and every manager's primary task is to help

keep it flowing and to use the cash flow to generate profits. If a

business is operating profitably, then it should, in theory, generate

cash surpluses. If it doesn't generate surpluses, the business will

eventually run out of cash and expire.

The faster a business expands the more cash it will need for

working capital and investment. The cheapest and best sources of

cash exist as working capital right within business. Good

7management of working capital will generate cash will help

improve profits and reduce risks. The business should bear in mind

that the cost of providing credit to customers and holding stocks

can represent a substantial proportion of a firm's total profits.

There are two elements in the business cycle that absorb cash -

Inventory (stocks and work-in-progress) and Receivables

(debtors owing you money). The main sources of cash are

Payables (your creditors) and Equity and Loans.

WORKING CAPITAL MANAGEMENT

The term Working capital management refers to the management

efforts for optimizing the working capital and improving the

productivity of the short term capital invested in the Business. It

includes decisions relating to working capital and short term

8financing and involves managing the relationship between a firm's

short-term assets and its short-term liabilities. The goal of working

capital management is to ensure that the firm is able to continue

and that it has sufficient cash flow to satisfy both maturing short-

term debt and upcoming operational expenses.

Cash management - Identify the cash balance which allows

for the business to meet day to day expenses, but reduces

cash holding costs.

Inventory management - Identify the level of inventory

which allows for uninterrupted production but reduces the

investment in raw materials - and minimizes reordering costs -

and hence increases cash flow.

Debtor’s management - Identify the appropriate credit

policy, i.e. credit terms which will attract customers, such that

any impact on cash flows and the cash conversion cycle will

be offset by increased revenue and hence Return on Capital

(or vice versa); see Discounts and allowances.

Short term financing - Identify the appropriate source of

financing, given the cash conversion cycle: the inventory is

ideally financed by credit granted by the supplier; however, it

9may be necessary to utilize a bank loan (or overdraft), or to

"convert debtors to cash" through "factoring".

Managing payables - Creditors are a vital part of effective

cash management and should be managed carefully to

enhance the cash position.

KINDS OF WORKING CAPITAL

Kinds of working capital are shown in the following chart:-

10

CONCEPTS OF WORKING CAPITAL

The concept of Working Capital includes Current Assets and

Current Liabilities both. There are two concepts of Working Capital

they are Gross and Net Working Capital.

1. Gross Working Capital: Gross Working Capital refers to the

firm's investment in Current Assets. Current Assets are the assets,

which can be converted into cash within an accounting year or

operating cycle. It includes cash, short-term securities, debtors

(account receivables or book debts), bills receivables and stock

(inventory).

KINDS OF WORKING CAPITAL

ON THE BASIS OF CONCEPT

GROSS WORKING CAPITAL

NET WORKING CAPITAL

ON THE BASIS OF TIME

PERMANENT OR FIXED WORKING

CAPITAL

REGULAR WORKING CAPITAL

RESERVE WORKING CAPITAL

TEMPORARY OR VARIABLE

WORKING CAPITAL

SEASONAL WORKING CAPITAL

SPECIAL WORKING CAPITAL

112. Net Working Capital: Net Working Capital refers to the

difference between Current Assets and Current Liabilities are those

claims of outsiders, which are expected to mature for payment

within an accounting year. It includes creditors or accounts

payables, bills payables and outstanding expenses. Net Working

capital can be positive or negative. A positive Net Working Capital

will arise when Current Assets exceed Current Liabilities and vice

versa.

On the basis of TIME, working capital may be classified as:

Permanent Working Capital - Permanent or fixed working

capital is the minimum amount which is required to ensure

effective utilization of fixed facilities and for maintaining the

circulation of current assets. As the business grows, the

requirements of permanent working capital also increases due o

the increase in current assets.

The permanent working capital can further be classified as

regular working

Capital. Working capital required to ensure circulation of current

assets from cash to inventories, from inventories to receivables

and from receivables to cash and so on is known as regular

working capital. Reserve working capital is the excess amount

over the requirement for regular working capital which may be

provided for contingencies that may arise at unstated periods

12such as strikes, rise in prices, depression ,etc. it is required by

the enterprise to carry out its normal business operations.

Temporary or Variable Working Capital - Temporary or

variable working capital is the amount of working capital which is

required to meet the seasonal demands and some special

exigencies. Variable working capital can be further classified as

seasonal working capital and special working capital. Most of the

enterprises have to provide additional working capital to meet

the seasonal and special needs. The capital required to meet the

seasonal needs of the enterprise is called seasonal working

capital.

Special working capital is that part of working capital which is

required to meet special exigencies such as launching of

extensive marketing campaigns for conducting research, etc.

DIFFERENCE BETWEEN TEMPORARY WORKING CAPITAL AND

PERMANENT WORKING CAPITAL

Temporary working capital differs from permanent working capital

in the sense that it is required for short periods and cannot be

permanently employed gainfully in the business.

OBJECTIVES OF WORKING CAPITAL

Every business needs some amount of working capital. It is needed

13for following purposes-

• For the purchase of raw materials, components and spares.

• To pay wages and salaries.

• To incur day to day expenses and overhead costs such as fuel,

power, and office expenses etc.

• To provide credit facilities to customers etc.

ADVANTAGES

• It helps the business concern in maintaining the goodwill.

• It can arrange loans from banks and others on easy and favorable

terms.

• It enables a concern to face business crisis in emergencies such

as depression.

• It creates an environment of security, confidence, and overall

efficiency in a business.

• It helps in maintaining solvency of the business.

ADEQUACY OF WORKING CAPITAL

A firm must have adequate working capital. It should neither be

excessive nor inadequate. Excessive working capital is a situation

where in the firm invests excessive funds in working capital. These

excessive or idle funds earn no profit for the firm.

DANGERS OF EXCESS WORKING CAPITAL

14 It may result in unnecessary accumulation of inventory which

may lead to increase in wastage due to mishandling, theft etc.

It is an indication of defective credit policy. There is the

possibility of higher incidence of bad debts.

It may lead to complacency in managing day-to-day expenses

of the firm.

Executives may be tempted to spend more

Excessive working capital means idle funds which earns no

profit for the business, and thus cannot earn proper rate of

return on its investments.

It may result into overall inefficiency in the organizations.

When there is excessive working capital relation with banks

and other financial institutions may not be maintained.

The redundant working capital gives rise to speculative

transactions.

Due to low rate of return on investments the value of shares

may also fall.

In case of redundant working capital there is always a chance

of financing long term assets from short term funds which is

very harmful in long run for any organization

Inadequate working capital is a situation where in the firm

does not have sufficient funds to meet day to day running

expenses. This ultimately results in interruption in the

production process.

15

DANGERS OF INADEQUATE WORKING CAPITAL

Operating inefficiencies creep in when it becomes difficult of

meet day-to-day commitments.

It becomes difficult to implement operating plans and achieve

firm’s targets.

It directly affects firm’s liquidity position and the firm may find

it difficult to honor short-term obligations.

It cannot by its requirements in bulk and cannot avail of

discounts it stagnates growth.

It becomes difficult for the firm to exploit favorable market

conditions and undertake profitable projects due to non

availability of working capital funds.

It becomes impossible to utilize efficiently the fixed assets due

to non availability of liquid funds thus the firm’s profitability

would deteriorate.

ii) SIGNIFICANCE OF WORKING CAPITAL MANAGEMENT OF DLF

INVENTORY MANAGEMENT AT DLF

The investment in inventory in production is a dominant

determinant of working capital management. It holds much

16important in context of DLF as it is having a long production cycle

where a good amount of capital is tied up in form of raw material,

work in progress and conversion cost. Production planning and

control department plays a pivotal role in inventory management.

The engineering department plays a supporting role and provides

the

requisition regarding technology to be applied and material

requires to PPC department. In DLF the inventory control is perform

with following steps: -

1. Planning -

This is done by PPC department is consultation with purchase,

commercial, design and manufacturing department prepares the

planning schedule. This schedule along with information provided

by engineering and design department helps in material planning

and inventory control.

2. Procurement –

The procurement is done by purchase department. It is done with

the assistance of PPC and commercial department for maintaining

a tradeoff between carrying costs and ordering cost. A single

purchase order is placed for the entire quantity of a specific item

and its scattered delivery over a period of time is received. This

method helps in obtaining cash and quantity discounts and saving

17carrying cost. In case of foreign purchase also one order is placed

for the full requirement of an item and scattered delivery is opted

because variation caused in material cost due to fluctuation in

exchange rate is much less than the carrying cost of the material

which is approximately 25% of the total price.

3. Receipt and Custody

For the proper inventory control on receipt of material in store,

quality control department checks the material as per specification.

The cost section fills details of all the purchase by issuing store

receipt voucher and material issue voucher.

4. Issue

After receiving the material and storing, the management keeps

the information whether these material are being issued to desired

destination. Full record of every issuing of material is kept for the

proper inventory control.

5. Accounting-

The record of every transaction regarding the use of

Material in every department is kept. These records give the

Overall view of how and where inventories have been used.

Methods Used For Inventory Control

18In DLF, planning and control of inventory is done by

Using two methods —

(i) ABC analysis

(ii) Slow moving and non-moving goods Analysis.

(iii) Budgeting material requirements

(iv) Fixation of raw material levels

(v) Variety reduction

(vi) Codification of materials

(vii) Control of work in progress

In case of manufacturing company like DLF, the number of items of

raw material runs into thousands. From the point of view of

monitoring information for control, it becomes extremely difficult to

consider each one of these items. In this case ABC analysis

becomes useful and enables management to concentrate attention

and keeps a close watch on a relatively less number of items,

which account for a high percentage of annual usage value of all

items of inventory.

Annual usage value = Annual requirement per unit cost.

CASH MANAGEMENT AT DLF

In D.L.F., the centralized cash credit system is followed.

From 24-09-80 all the banking transactions of the company have

been centralized at corporate office, New Delhi. Under this system

19all the sales proceeds of the units are deposited in a centralized

account. This account number is universal for all the units of ROD’s.

For meeting day to day expenses, the units have to prepare the

estimates of such expenses, which are then sent to corporate office

weekly, or monthly, or both. At unit level, the cash budget is

prepared on yearly basis for estimating the expected cash inflows

and outflows. The yearly budget is broken down into monthly and

weekly intervals. The inflows and outflows are estimated on the

following basis. The only source of cash inflow for unit is corporate

office. The sale proceeds cannot be directly utilized. Based on the

above requisitions, the corporate office allocates the funds. For

cash credit, corporate office will negotiate with consortium of Banks

for total cash credit required for the company as the whole. A

consortium deed for hypothecation of stocks and stores of

company is executed by corporate office. All the information,

documents etc. required in this connection will be called for by the

corporate office from the division.\ Arrangements have been

already been made by the State Bank of India, HDFC Bank, Canara

Bank, Bank of Baroda and Indian Overseas Bank for centralizing

total cash credit limits at New Delhi.

RECEIVABLE MANAGEMENT AT DLF

DLF grants liberal terms regarding trade credit to lure the potential

customers to buy its product at favorable selling prices. To utilize

its excess capacity, DLF is granting liberal trade credit terms to its

20customers. All the DLF units are having their commercial

department. Commercial department and Regional Operational

Divisions (RDOs) primarily carry out the job of recovery from the

customers. The sales section of finance department also actively

takes part in receivable management by preparing and sending

invoices and reminders to customers at appropriate time. They

keep track of money received from customers as advances, as

against dispatch of finished goods and money recoverable on

account of price variation claims and conversion of deferred debts into

debtors. This monitoring is done work order wise. The aging

schedule of customers is also prepared which gives the record

regarding period of outstanding balances. The terms and conditions

with the customers are finalized according to the credit policy laid

down by corporate office, DLF. However deviations are permitted

with the due approval from corporate office. While lying down of

credit policy by the head office, industry conditions are taken into

consideration. Seeing huge investment in execution of work order,

DLF demands considerable payment in advance in different phases

of completion of work i.e. erection, installation, commissioning,

maintenance etc. Despite all these DLF is presently facing cash

crunch because a major chunk of DLF’s customers consists of

government bodies, which are very casual in clearance of dues.

KEY WORKING CAPITAL RATIOS AND THEIR INTERPRETATIONS

21DEBTORS TURNOVER RATIO

This ratio shows how many times sundry debtors (accounts

receivable) turn over during the year. It is defined as Net credit

sales / Average sundry debtors. A high ratio is indicative of

shorter time lag between credit sales and cash collection. A low

ratio shows that debts are not being collected rapidly. The analysis

of the debtor’s turnover ratio supplements the information

regarding the liquidity of one item of current assets of the firm.

After analyzing the debtors’ turnover of DLF it is clear that DLF

follows a liberal credit policy.

DEBTORS HOLDING PERIOD (in days)

DEBTORS/ (TURNOVER/365)

CREDITORS HOLDING LEVEL

CREDITORS/(PURCHASE/365)

On average, you pay your suppliers every x days. If you negotiate better(in days) (or Purchases) credit terms this will increase. If you pay earlier, say, to get a discount this will decline. If you simply defer

MAR2006 MAR2007 MAR2008 MAR2009

180 188.98 204.25 208.04

22paying your suppliers (without agreement) this will also increase - but your reputation, the quality of service and any flexibility provided by your suppliers may suffer.MAR2006 MAR2007 MAR2008 MAR2009121 123 129 115

Creditors holding period is decreasing which is a good sign for the

company because it shows that the creditors are being paid in

time.

STOCK TURNOVER IN DAYS

Stock Turnover Average Stock * 365/ = x days on average, you turn over the value of your entire stock every x days.(In days) Cost of Goods Sold You may need to break this down into product groups for effective stock management.

Obsolete stock, slow moving lines will extend overall stock turnover days. Faster production, fewer product lines, just in time ordering will reduce average day

SL.N

O

PARTICULARS FORMULA (2006-

2007)

(2007-

2008)

(2008-

2009)

1 RAW

MATERIAL(RM)

CONSUMPTION

10281.

86

11850.

87

17625.

05

2 PER DAY 1/365 28 32 48

3 RM 1942.4 2632.6 3582.8

23BALANCESHEET 9 4 3

4. HOLDING LEVEL 3/2 70 81 74

5. COST OF

PRODUCTION

14049.

92

16074.

99

22438.

5

6. PER DAY 5/365 38.48 44.02 61.48

7. STK IN

PROGRESS

(BALANCESHEET

)

1875.6

3

2548.5

3

3612.5

9

8. HOLDING LEVEL 7/6 49 58 59

9 COST OF SALES 14506.

72

17145.

35

24024.

27

10. PER DAY 9/365 39.74 46.97 65.82

11. FINISHED

GOODS

BALANCESHEET

401.55 557.23 643.6

12. HOLDING LEVEL 11/10 10 12 10

13. TOTAL HOLDING

LEVEL

(12+8+4) 129 151 143

CURRENT RATIO

CURRENT ASSET/CURRENT LIABILITY

The current ratio measures the company’s ability to pay its current debt. The current assets are used to pay current debts as current assets get converted into cash in the operating cycle of the firm. C.R 2:1 is taken as standard which means that each rupee of current liabilities should be backed by current assets valued two

24rupees. Normally a ratio under 1 suggests that the company would be unable to pay off its obligations if they become due at that point.

MAR 2006 MAR 2007 MAR 2008 MAR 2009

1.58 1.46 1.39 1.30

QUICK RATIO

QUICK RATIO

MAR

2006

MAR

2007

MAR

2008

MAR

2009

1.22 1.17 1.11 1.02

An Acid test ratio 1:1 is considered normally to be satisfactory. The

acid test ratio of DLF is still at a comfortable level. This means for

any immediate requirements or payments of current liabilities

enough current assets exist. Payments. Acid test ratio of DLF also

signifies that without debtors & inventories as part of current

assets the firm still has a good liquidity position.

WORKING CAPITAL RATIO

Mar Mar Mar’0

25'07 '08 9

PARTICULARS12 months

12 months

12Months

Working capital turnover ratio=Cost of goods sold/Net working capital

2.14 2.14 2.80

Inventory To Working Capital Ratio=Inventory/Working Capital

0.62 1.520.91

Ratio of Current Assets to Fixed Ratio=Current Assets/Fixed Assets

16.24 16.90 14.01

ANALYSIS

After analyzing the above ratios it is evident that Working capital

turnover ratio is fluctuating due to the fluctuating cost of capital

& amount of net current assets. For the first two financial years

the ratio remained constant as the proportion of increment of

cost of capital & w/c is same as the previous year’07. The overall

ratio does not indicate any steady growth of w/c.

Inventory to working capital ratio has increased in 2008-09 due

to the increase in cost of inventories.

Ratio of current assets to fixed assets is gradually decreasing. It

is because of the increase of fixed assets. It indicates the strong

fixed assets in the company balance sheet.

26CALCULATION OF WORKING CAPITAL OF DLF

PARTICULARS ACTUAL

2005-

2006

Crores

ACTUAL

2006-

2007

(Rs.

Crores)

ACTUAL

2007-

2008

(Rs.

Crores)

ACTUAL

2008-

2009

(Rs.

Crores)

CURRENT ASSETS

INVENTORY 3744.37 4217.67 5736.40 7837.02

SUNDRY DEBTORS 7168.07 9701.82 11976.87 15978.50

CASH & BANK

BALANCES

4135.97 5808.91 8386.02 10314.67

OTHER CURRENT

ASSETS

84.50 199.70 421.09 350.21

LOANS&ADVANCES 1199.87 1140.87 1387.80 2423.67

TOTAL A 16332.7

8

21069.97 27908.18 36904.07

CURRENT

LIABILITIES&

PROVISIONS B

CURRENT LIABILITIES 8807.74 11897.87 16576.45 23357.32

PROVISIONS 1512.28 2522.24 3445.85 4975.58

TOTAL B 10320.0

2

14420.11 20022.30 28332.90

NET CURRENT

ASSETS

A-

B

6012.7

6

6649.86 7885.88 8571.17

27

GRAPH SHOWING NET CURRENT ASSETS OVER THE YEARS

2005 06 2006-07 2007-08 2008-090

1000

2000

3000

4000

5000

6000

7000

8000

9000

WORKING CAPITAL MOVEMENT

WORKING CAPITAL MOVEMENT

rs in

cro

re

In the above figure we find that the working capital of DLF is

constantly growing. Therefore it is seen that working capital is

being adequately maintained each year which also means that DLF

plans very well the various sources of short term finance DLF not

only studies the trend of its working capital positions but also

efficiently minimizes the cost of short term finance.

28

USING DIFFERENY APPROACHES OF ESTIMATING WORKING CAPITAL

THE WORKING CAPITAL REQUIREMENT OF DLF IS DETERMINED

Estimating working capital requirements

The basic formulae for calculating working capital is the difference between current assets and currentLiabilities (working capital = current assets – current liabilities) and a ratio of 2:1 is considered as ideal orStandard i.e. for every 1 unit of current liability there should be 2 units of current assets. However, there arefew approaches which have been successfully applied in practice.1. Current assets holding period: To estimate working capital requirements on the basis of average holding period of current assets and relating them to costs based on the company’s experience inthe previous years. This method is essentially based on the operating cycle concept.2. Ratio to sales: To estimate working capital requirement as a ratio of sales on the assumption that current assets change with sales.3. Ratio to fixed investment: To estimate working capital needs as a percentage of fixed investment.

(ALL FIGURES IN INR CRORES ASSUMPTIONS MADE AS PER 1 MONTH)

(ALL FIGURES IN INR CRORES ASSUMPTIONS MADE AS PER 1 MONTH)

291. CURRENT ASSET HOLDING PERIOD

Calculating the 12 months average holding period of current assets,

A. INVENTORY

(a) Raw material (one month’s supply)= Raw material consumed in a year /12

(MARCH 2009)1762.05/12 = 1469

(b) WIP

Work-in-progress (one month’s supply)= Work-in-progress/12(MARCH 2009) 3612.59/12 =301

(C) FINISHED GOODS

Finished goods3 (one month’s supply)Finished goods/12(MARCH 2009) 22246/12 = 1854

TOTAL INVENTORY NEEDS- (1468+301+1854) = 3623

B.SUNDRY DEBTORS (1 month’s sale)

ANNUAL SALES (2008-2009)/12

28033/12 =2336

C.CASH AND BANK BALANCES (1 months total production cost)

30Total production cost as per schedule/12

22439.5/12 = 1870

Therefore adding A, B, &C we get total working capital requirement

3623+2336+1870 = 7829

However, this method is subject to error if the business is prone to seasonal fluctuations.

2. Ratio to Sales: The average percentage is calculated based on the assumption that sales of next FY 2010 will grow by 22.60%

AVERAGE % OF CURRENT ASSET TO SALESPARTICULARS MARCH

2007MARCH2008 MARCH

2009SALES 18738 21402 28033

CURRENT ASSETS(C.A)

21069.97 27908.18 36904.07

% OF(C.A) TO SALES

112.40% 130.40% 131.63%

AVG % 124.81 or 125

It is assumed that in FY 2010, increase in sales is 22.60%. Hence, the sales in FY 2010 is 28033*122.60/100 = INR 34368.45 crores.Average sales growth = Sales growth rate over past three years/number of years= [22.60 (FY2009) + (31) (2008) + 14.21(2007)]/3= 22.60Therefore, the amount of working capital requirement is 125% of sales (2009), INR 28033 crores, which isINR 35041 crores

31This approach has limited reliability because it depends on the accuracy of sales estimation. In case of inaccurate sales estimation, the percentage calculation of current assets to sales will go wrong and hence the working capital requirement will also go wrong.

3. Working capital ratio of Fixed Investment: This method is generally not used in practice as this method also depends on the level of accuracy of fixed investments calculation.

However, it is observed that every approach of estimating working capital requirements have some limitations. It depends on the nature of the industry and company’s capability in managing current assets which determine the working capital requirements.