Working Capital requirements
1. From the following information find out the working capital requirements of P Ltd
Projected annual sales Rs.650000
%of N.P to Cost of Sales 25%
Average credit allowed to debtors _10weeks
Average credit allowed to creditors-4weeks
Average Stock carrying (in terms of Sales requirements)-8weeks
Add 20% to allow Contingencies
Solution:
Forecasting Working Capital Requirements:
Projected Annual Sales - Rs. 65,00,000
- Projected sales per week - 65,00,000/52 = Rs. 1,25,000
Projected Cost per week :
Projected sales per week - Net profit
Net Profit: 25% on Cost or 20% on sales = 125000*20/100 = Rs. 25,000.
Therefore, Projected Cost per week = Projected sales per week - Net Profit
125000 - 25000 = Rs. 1,00,000.
WORKING CAPITAL REQUIREMENT FORECAST STATEMENT:
|  |  | Rs. (Inner
  cl) | Rs. (Outer
  cl) | 
| Current Assets: |  |  |  | 
| Stock ( 8 weeks): | 1,00,000 X 8
  =  |  | 8,00,000 | 
| Debtors (10
  weeks) | 1,00,000 X 10
  = | 10,00,000 |  | 
| + Add Profit
  @ 25% on cost | 10,00,000 X
  25% | 2,50,000 | 12,50,000 | 
|  |  | A | 20,50,000 (A) | 
| Less : Current
  Liabilities:  |  |  |  | 
| Creditors (4
  weeks) | 1,00,000 X 4 | B | 4,00,000 (B) | 
|  |  | Working Capital (A – B) | 16,50,000 | 
| Add: 20% for contingencies |  |  | 3,30,000 | 
| TOTAL REQUIREMENT
  OF WC |  |  | 19,80,000 |