Interest on working capital loan

Started by upvncma, May 10, 2014, 12:04:20 pm

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May 10, 2014, 12:04:20 pm Last Edit: May 11, 2014, 08:00:56 am by CMA Kaustubh Patel

"How will you deal with Interest on working
capital while calculating the IRR.??"

what is the answer for this? can you explain it??

pls answer this

Edit: This question was asked in Neyveli lignite Interview @ CMA Chennai Campus 2014.Find the link to the whole article on Neyveli Lignite Interview at


May 10, 2014, 12:04:20 pm Last Edit: May 11, 2014, 08:00:56 am by CMA Kaustubh Patel

Mr. Patel

I am not sure but it is correct up to 90%.

While calculating the Investment cash flow for Investing decision, generally the financing activities are not taken in to consideration.Financial activities like cash flow from issuse of shares are not considered for INVESTMENT DECISION CASH FLOW.

For example: If we are making a investment decision whether to consider Project A or B, then we will not consider the capital structure of company rather we consider the only cost related to this projects.

Now question arise whether Interest on Working Capital Loan is financing activities?

On general observation you will find that since all loan are financing activities, then interest accured from this loan will also be financing activites.

If you thinking so then let me tell you, you are wrong....

It is said that only long term loans are considered as financing activities, the loan taken for working capital requirement are not  considered as financing activities.

Just go through the Accounting Standard 3, you will find that the short term loan taken for working capital requirement are consider as operating activity, and it will be indicate in operating activities column of cash flow.

Thus, Working capital loan is a expectional case and it will not be consider as financing activities.It will be considered as a operating activities and will be taken in to considered for calculating the IRR, that is it will be considered as cash outflow.

Correct me guys if i am wrong.

Further i am requesting you to start a new topic for new query.


Internal Rate of Return(IRR) is a financial metric for cash flow analysis, primarily for evaluating the perfomance of investments, capital acquisitions, project proposals, programs, and business case scenarios. Based on this company analyze the short term loans needed to maintain cash flows in company. If you are looking for working capital loan then Lendingkart Finance is best option for you, low interest rate, minimal documentation & 3 days loan disbursal.


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