Working Capital (Iw)

8/13/2019 Working Capital (Iw)

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Working Capital is mainly made up of:

Inventory (raw material, semi-finished

products, stock of spare-parts, operationalmaterials)

Cash


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Credit to buyers, outstanding bills

Credit from suppliers (when considering this

section, bear in mind that its value must bededucted form the rest of the WorkingCapital).


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1 -Stock of raw materials

The quantity of raw materials thatmust always be kept in stockdepends on many factors, but

mainly on:


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Its origin, national or imported

Availability, number of suppliers, etc


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In the case of national raw

materials, an average valueequivalent to 15-30 days

production, at factory price,

can be included in the workingcapital.


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In the case of imported raw

materials, an average of 90-120days production can be

included in the working capital.


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The value for the raw materialswill include costs for importation

and transport to the factory.


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The current tendency is toreduce as much as possible thestock of raw materials, finalproducts, package material,

spare-parts, etc., since storageincreases costs andimmobilizes capital.


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The management technique

used in this case is called "justin time".


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This component includes thevalue of raw materials,services, direct manpowerneeded for factory production.

Its magnitude dependsbasically on the process(continuous or batch).


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These are products which still have togo through other production

processes, before being placed onthe market, or which are stillawaiting laboratory approval. Cost

can be high in industries whereapproval of products takes a longtime.


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Many factors can determine thequantity of a finished product that is

kept in storage. Storage of finishedproducts in a freezing factory whichonly produces fillet blocks will be

very different to that of a canningfactory which makes a great varietyof products.


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Similarly, there are someproducts which are consumed in

greater quantities duringparticular periods of the year (forexample Easter in Christian

countries) while others areconsumed regularly throughoutthe year.


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When not dealing with a

specific case and when no otherdata are available, 30

production days are usually

taken as average storage timefor finished products.


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The value of the spare-parts canvary within a very high price

range, especially if at the start ofoperations, a plant could haveimported equipment from

abroad, which is usually providedwith spare-parts for several years'operation.


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From the point of view of theproject, the value of the spare-

parts is generally estimated asthe equivalent of 1 to 3 monthsoperation, bearing in mind the

total yearly amount that hasbeen taken. to calculate the costof sales.


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A similar criterion is followed foroperational materials, assigning

the equivalent of a month'sexpenditure to working capital,

which will be kept permanently instorage.


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Cash is the amount of money in hand

that must be kept available to ensureplant operation, payment for rawmaterials, salaries, services, etc.Usually the cash for a project is

equivalent to 30 days of the totalproduction costs minus depreciation.


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one of the most importantcomponents of working capital.

Several factors influence on thecalculation of its volume. the most

important is the credit conditionsfixed by the market.


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Each business has its own policy,which can vary from 30 to 60 to

365 days. On the domestic market,it is usual to provide credit to

supermarkets for fishery products.


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it should be considered in financialanalyses of the project in order to

correct the value. In the case ofinputs for fish plants in Argentina,

this credit is granted by fishsuppliers, with a limit of 15 days

for national raw material and 30-

90 days for imported raw material.


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Various methods can be used toestimate working capital, among

which:

A-Take it as 10-20% of fixed

investment. Generally, 10% isused as an acceptable

approximate estimate for fish

industries when data are lackin .


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Working Capital (Iw)

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