Operating Cycle = Inventory Period + Accounts Receivable Period. It is the duration from buying raw materials to collecting cash from customers.

In Method I, MPBF = 0.75 * (Total Current Assets - Current Liabilities). This implies the borrower finances 25% of the Working Capital Gap (CA-CL) from long-term sources.

Gross Working Capital is Total Current Assets. Net Working Capital is the difference between Current Assets and Current Liabilities, representing the liquidity cushion.

Spontaneous sources arise naturally from day-to-day business operations (like buying goods on credit creates accounts payable). They expand automatically as sales expand.

Net Working Capital = CA - CL. If CA = CL, Net Working Capital is zero. This implies no long-term funds are used to finance current assets.

CPs are used by highly rated corporates to meet short-term working capital requirements at rates typically lower than bank interest rates.

Method II ensures that the borrower finances 25% of Total Current Assets from long-term sources, resulting in a Current Ratio of 1.33:1.

Gross Operating Cycle = Inventory Period + Receivables Period = 60 + 45 = 105 Days. (Note: Net Operating Cycle would be 105 - 30 = 75 days. Usually "Operating Cycle" implies Gross unless specified).

It is a forecasting tool that estimates cash inflows and outflows, ensuring the firm has enough liquidity to meet obligations.

While a high ratio shows safety, too high means cash is not being invested or inventory is not being sold, indicating poor asset management.

The Chore Committee reinforced the adoption of Tandon Method II: MPBF = (Total Current Assets * 0.75) - Current Liabilities (excluding bank borrowings). This ensures a higher current ratio.

This indicates a liquidity crisis where short-term obligations exceed short-term assets. However, in some sectors like retail (supermarkets), this might be a strategy (using supplier credit to fund inventory).

Factoring allows a firm to sell its accounts receivable (invoices) to a Factor for immediate cash (up to 80-90%), improving liquidity.

The Baumol Model balances the "Ordering Cost" (Transaction cost of selling securities) against the "Carrying Cost" (Opportunity cost of holding cash) to find the optimal cash balance, just like EOQ.

Carrying costs are the costs of holding inventory in the warehouse. Ordering costs are associated with placing orders. Stockout costs arise when inventory is exhausted.

JIT is a lean manufacturing strategy. By eliminating idle stock, it minimizes storage, insurance, and obsolescence costs, though it increases the risk of stockouts.

Based on a working capital cycle of 3 months (25% of year), the requirement is 25% of turnover. The promoter brings 5%, and the bank provides 20% as a minimum limit.

An LC (especially Usance LC) allows the buyer to receive goods now and pay later. This creates "Sundry Creditors," which is a source of spontaneous working capital financing.

CCC measures the time between paying for raw materials and receiving cash from sales. A shorter cycle is better for liquidity.

T-Bills are short-term sovereign debt instruments issued by the Central Government (via RBI) to meet short-term liquidity mismatches. They are risk-free.

A conservative policy minimizes risk by using safe long-term funds for everything, even temporary needs. This increases safety (high liquidity) but reduces profitability (higher cost of long-term funds).