Page 45 - Banking Finance December 2022

ARTICLE

Components of current assets FG plus Closing stock of FG divided by 2
Raw materials consumed c) Cost of Sales = Cost of Production + Opening stock of FG
- Closing stock of FG.
Other consumable spares
Stocks in process
Receivables Holding period:
Finished Goods Holding period of receivables/ Debt Collection period in
months is calculated is measured by Average Receivables
Export Receivables
Outstanding multiplied by 12 and divided by Gross Credit
Other Receivables
Sales.
a) Debt collection (in months) = Average Receivables
Components of current liabilities Outstanding x 12/ Gross credit sale
Creditors for purchases
b) Average receivables outstanding = Sundry debtors + bills
receivables inland + bills purchased and discounted by
Calculation of Holding period banks inland.
Raw Material Holding period:
Creditors Holding period:
Holding period of raw material (RM) in months is measured
by the Average stock of RM divided by RM consumption Creditors' holding period in months is measured by
multiplied by 12. multiplying Trade Payables by 12 and dividing by Purchase
a) RM Holding Period = Average stock of raw materials a) Creditors holding period = Trade Payables *12 / Purchase
*12 / Raw Material Consumption
Monitoring of Working Capital Advance
b) Raw material consumption is measured by Opening
stock of Raw Material plus Purchase of Raw Material sanctioned under FBF method
minus Closing stock of raw material.
It is important that the sanctioned working capital facility
c) Average stock of RM is measured by Opening stock of is monitored properly and on a continuous basis. Banks have
RM plus Closing stock / 2 devised certain tools for monitoring of the account.

Work In Progress Holding period: In order to monitor performance in working capital facilities
Holding period of Wok-in-Progress (WIP) in months is certain statements need to be scrutinised as under-
measured by the Average stock of WIP divided by Cost of 1) MSOD: Monthly Select Operational Data
production (CoP) multiplied by 12.
2) QPR: Quarterly Progress Report
a) WIP Holding Period = Average stock of WIP * 12 / Cost
3) CA certified Book Debt statements
of Production
b) Average stock of WIP is measured by Opening balance
Conclusion
of WIP plus Closing stock of WIP divided by 2.
We need to work in synergy with economic dynamics and we
c) Cost of Production is measured by Raw Material
cannot stick to any particular model of working capital
consumed + Manufacturing expenses + Depreciation +
assessment. With the changing economic arena worldwide,
Opening stock of WIP - Closing stock of WIP.
the businesses in India need to be oriented in that direction.
For that, it is pertinent that new models are created for
Finished Goods Holding period:
funding business enterprises that should be flexible enough
Holding period of Finished Goods (FG) in months is measured
to assimilate ground realities of business, meaning by,
by the Average stock of FG divided by Cost of Sales (CoS)
Development should be intrinsic in these methods. Flexible
multiplied by 12.
Bank Finance method is an effort for that intent. It will pave
a) Holding period of FG = Average stock of FG x 12 / Cost
a way for more liberal approach for development of
of sales
enterprises in tune with liberalised economy and is worth
b) Average stock of FG is measured by Opening balance of being implemented across banks and Financial Institutions.
BANKING FINANCE | DECEMBER | 2022 | 45