Working Capital Operating Cycle - Explained in Hindi - YouTube

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Namaskar, my name is Mukul and you are welcome to the Asset Yogi

Where we unlock the knowledge of finance

In this video, I am going to discuss a very important business-related topic

Which is the working capital operating cycle

We will do a small series of 4 or 5 videos

on working capital

We will discuss the working capital management in that

Because it is very important for every business

If you are doing your business or you want to do business in future

Or if you invest or want to invest in the share market

Then it is a very important topic for understanding

Many people ask me to make a video on share market investing

Share market investing is not a topic that can be covered by only one video

For this, you should have an understanding of finance

So working capital is such topic

which can help you to

analyze any business properly.

Or you can implement that in your business

In fact, many companies shut down because

their working capital management is not that good

Assume if you cannot manage finance for your day-to-day

Then your creditors and banks will be on your doorstep

And you face issue with your liquidity

And you aren't able to manage your working capital

Then nobody can stop you from being liquidated

Liquidate means nobody can stop

you from being bankrupt

So that's why I say that you should

understand the concept of working capital properly

How will you manage the working capital?

We will know in this video.

So let's understand working capital

operating cycle in this video.

Let's go towards the blackboard

So to understand the working capital operating cycle

We have to understand the whole cycle of a business

To which we call cash to cash cycle

Now, if we take an example of manufacturing business

Then the first requirement in that is the raw material

To purchase the raw material, you'll need the cash

Once you get raw material, then you start the manufacturing

So that raw material goes to work in progress

Then your production process gets completed and the goods are converted into

finished goods. After the finished goods, you make their sales

Whoever your wholesalers or retailers are

You send the goods to them

But these retailers or wholesalers, do not give you the money immediately

They purchase goods from you on credit.

So that's why I have written them as debtors

They can be your end customers.

Whether they are retailers or wholesalers in case of the manufacturing

This process can be different in different types of process

We are talking about the manufacturing business only

So the debtors also have a credit period

After that, whenever they will give you your money

Then they give bills receivable, which is also called a bill of exchange

So the bill of exchange also has a period, we will not get the money immediately

Then you get cash

The whole cycle from cash to getting converted into cash

Either we call it cash-to-cash cycle

Or we can also call it an operating cycle

Or we can also call it the working capital operating cycle

Now we will see, how much time it will take to complete

all these processes. For example, assume

you will take 30 days to purchase the raw materials

So we will take 30 days here

And you will store the raw material

The total time of purchasing and storing the raw materials is 30 days

After that, you will manufacture it

Let's say it will take 10 days on average in the manufacturing process

After this, when they become finished goods

So the finished goods do not get sold immediately

So maybe they also have some storage time

Your goods may be stored in the warehouse. So it can be 20 days

Once your sales are done, then your debtors,

wholesalers and retailers will not give you the money immediately

They will either give you bills receivable or bills of exchange

They will also demand the credit period

So maybe their credit period can be 30 days

So your cash to cash cycle

How much is it in total? We will calculate it

30 days for your raw material

Plus manufacturing process of 10 days

Plus 20 days for storage of finished goods

So I will write 20 days here.

Plus credit period of 30 days which you've given to the wholesalers or retailers

So we will take 30 days here

Now when you will add these, you will get 90 days of the working capital cycle

So your money will be back after 3 months

Now the expenses during these 3 months

You have to manage that by yourself

These 3 months are your working capital period

Your expenses are called working capital

Now what are expenses there in the working capital

For example, first, you have to arrange the

cost for the raw materials

So the expense for the raw materials initially

You do it from your pocket or any other way you want to finance it

That is an expense plus

You will have some salaries for your staff

Other than this there will be your rent

What can be other expenses?

Maybe you have some loan payments

Assume you have set up a factory, maybe you have taken some loan for that

So your regular loan payments are there

Plus you could have some marketing expenses

When you sell your finished goods then maybe you have some marketing expense

So you have to add them

All these expenses and a period of 3 months

You have to arrange the working capital for this

How will you manage its expenses?

I will make a separate video on how the financing of working capital is done

But you should understand the concept that what is working capital

I think you've understood how is working capital operating cycle is done in this video

How much money do you need for how much time?

This is called working capital. In the next video, we will see what is the formula

for working capital, what is its calculation and we will understand

the concept with the help of an example.

I hope you liked this video

So like and share the video.

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Then you can comment below.

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Let's meet in the next video

Till then keep learning, keep earning

And be happy