Working Cap Nava Bharat Ventures

Assignment-4

Working Capital Policy

of

Nava Bharat Ventures Ltd.

Course: Financial Management-1

Instructor: Prof S N Rao

Nirmit Jain/10133/Sec-1,PGP-1

Summary Report

Working Capital policy is the set of guidelines that a company follows keeping in mind its day to day cash, inventories, receivables, accruals, and accounts payable etc. A working capital policy also deals with the financing of the current assets. This aspect of working capital policy can be broadly divided into three approaches on the basis of mix of short and long term finances.

These approaches are:

Conservative Approach: Under this approach, a firm is said to be conservative as it depends more on long-term funds to finance its permanent current assets and a part of temporary current assets. When the company doesn’t need much current assets for operations, it generally parks its funds in short-term marketable securities. This approach has been called conservative as the company, comparatively, has less risk of facing shortage of funds. However, it also attracts lower returns due to lesser risk.

Moderate Approach: The firm uses a matching or hedging approach by funding only its fixed assets and permanent current assets by long-term finances, current liabilities are required to fund the temporary current assets.

Aggressive Approach: This approach goes one step ahead of the two approaches above wherein the short-term finances finance the current assets more than what is warranted, sometimes even to the extent of financing fixed assets. The company however, faces higher risk of facing financial embarrassment.

The Company Nava Bharat Ventures Ltd. seems to have followed an approach that is more towards conservative side. But in the recent years it has been increasing its unsecured loan part of the total debt.

The Total Current Assets of the company is 125.88% of total assets(total current assets are not net of current liabilities) which have been financed...