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MGT601 - SME Management - Lecture Handout 25

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WORKING CAPITAL

Working capital management or current asset management is one of the most important aspects of overall financial management in an enterprise. It is basically concerned with the management of current assets and current liabilities and inter relationship between them.

Meaning of Working Capital

Working capital is the amount of funds needed by an enterprise to finance its day to day operation. It is the part of capital employed in short-term operation such as raw materials, semi finished products, sundry debtors. Because of its variable nature, the working capital is also referred to as circulating capital. It may be pointed out that the total working capital is composed of two parts.

  1. Regular Capital
  2. Variable Capital

Regular Working capital is required for permanent investment in any business for holing certain minimum quantity of raw material, finished product or cash. Such investment is irreducible minimum and remains permanently sunk into business.

The remaining portion of working capital is variable. The variable portion first gets tied up into raw materials which are then converted into finished goods. On the sale of goods it gets converted into account receivables or cash and circle is then completed. It is depicted in following figure.

Working Capital

Different Senses of “Working Capital”

The term working capital is usually used in two different senses namely.

  1. Gross Working Capital
  2. Net Working Capital

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MGT602 - Entrepreneurship - Lecture Handout 43

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NEW VENTURE EXPANSION STRATEGIES AND ISSUES

LEARNING OBJECTIVES

  1. To explain the methods for expanding the venture.
  2. To discuss the types of joint ventures and their uses.
  3. To discuss the concepts of acquisitions and mergers.
  4. To discuss the appropriateness and uses of leveraged buyouts.
  5. To discuss the different types of franchises.
  6. To identify the steps in evaluating a franchise opportunity.

JOINT VENTURES

with the increase in business risks, hyper-competition, and failures, joint ventures have increased. A joint venture is a separate entity involving two or more participants as partners. They involve a wide range of partners, including universities, businesses, and the public sector.

Historical Perspective

Joint ventures are not new. In the U.S. joint ventures were first used for large-scale projects in mining and railroads in the 1800s.The largest joint venture in the 1900s was the formation of ARAMCO by four oil companies to develop crude oil reserves in the Middle East. Domestic joint ventures are often vertical arrangements made between competitors allowing economies of scale. The increase in the number of joint ventures has been significantly throughout the 1990s.

Read more: MGT602 - Entrepreneurship - Lecture Handout 43

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