Working Capital Requirements of a Project

Working Capital Requirements of a Project

It is essential to estimate the working capital requirements of a project to ensure smooth project implementation. In India Working capital finance for projects is provided according to the lending norms of the tandon committee. 

 

The working capital requirements of a project consists of –

  • Raw materials and Components
  • Stock of Work in Progress
  • Stock of Finished Goods
  • Debtors
  • Operating Expenses

 

Sources of Working Capital Finance for a project  –

  • Working capital Advances provided by commercial Banks
  • Trade Credit
  • Accruals and Provisions
  • Long term sources of Finance

 

Limitations of Obtaining Working Capital Finance –

♦ The maximum permitted bank finance is computed on the basis of norms laid down by the Tandon Committee in its Lending Norms.

♦ A firm has to also provide certain margin money against its current assets in order to obtain working capital finance.

♦ Maximum permissible bank finance can be computed by the following –

 

Working capital requirements of a project

♦ The margin requirements vary with the type of current asset –

  • The margin money for Raw Material – 10% – 25% of cost of raw materials
  • The margin money for Work In Progress – 20% – 40%
  • The margin money for Finished Goods – 30% – 50%
  • The margin money for Debtors – 30% – 50%

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