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 |