To find the approximate amount of working capital a company should have, you should look at

"working capital per dollar of sales." In other words, you are going to have to compare the amount of
working capital on the balance sheet to the total sales, which is found on the income statement, not
the balance sheet. A business that sells a lot of low-cost items, and cycles through its inventory
rapidly (a grocery store) may only need 10-15% of working capital per dollar of sales. A manufacturer
of heavy machinery and high-priced items with a slower inventory turn may require 20-25% working
capital per dollar of sales. A company such as Coca Cola would probably fall somewhere between the
two.

Here's the formula for Working Capital per Dollar of Sales

Working Capital ÷ Total Sales (Found on the Income Statement)

Let's look at an example taken from an old annual report of Goodrich.

Sample Working Capital Per Dollar of Sales Calculation

Goodrich provides systems for aircraft as well as manufacturers heavy-duty engines. Working Capital:
$933,000,000 (current assets - current liabilities) Total Sales (found on the income statement) =
$4,363,800,000

Let's plug the numbers into the formula:

Working Capital of $933,000,000 ÷ Total Sales of $4,363,800,000

The answer for Goodrich is .2138, or 21.38%. As a manufacturer of heavy duty machinery, GR falls within
the 20-25% working capital per dollar of sales range. This is good and compares favorably to
competitors.
BALANCE SHEET OF ADIDAS

Cash and cash equivalents 5 244 295 (17.3)

Short-term financial assets 6 141 86 64.1
Accounts receivable 7 1,624 1,459 11.3
Inventories 8 1,995 1,629 22.5
Income tax receivables 28 110 60 82.9
Other current assets 9 789 529 49.1
Assets classified as held for sale 3 31 80 (60.2)
Total current assets   4,934 4,138 19.3
Property, plant and equipment 10 886 702 26.2
Goodwill 11 1,499 1,436 4.3
Trademarks 12 1,390 1,291 7.6
Other intangible assets 12 204 194 4.9
Long-term financial assets 13 96 103 (6.8)
Deferred tax assets 28 344 315 9.2
Other non-current assets 14 180 147 24.9
Total non-current assets   4,599 4,188 9.8
Total assets   9,533 8,325 14.5
         
Short-term borrowings 15 797 186 328.3
Accounts payable   1,218 849 43.5
Income taxes 28 321 285 12.9
Accrued liabilities and provisions 16 1,008 1,025 (1.7)
Other current liabilities 17 295 266 10.6
Liabilities classified as held for sale 3 6 4 33.8
Total current liabilities   3,645 2,615 39.3
Long-term borrowings 15 1,776 1,960 (9.4)
Pensions and similar obligations 18 132 124 6.3
Deferred tax liabilities 28 463 450 2.9
Non-current accrued liabilities and provisions 16 65 73 (11.3)
Other non-current liabilities 19 52 69 (23.3)
Total non-current liabilities   2,488 2,676 (7.0)
Share capital   194 204 (5.0)
Reserves   (10) 161 (104.9)
Retained earnings   3,202 2,658 20.4
Shareholders’ equity 21 3,386 3,023 12.0
Minority interests 20 14 11 25.5
Total equity   3,400 3,034 12.1
Total liabilities and equity   9,533 8,325 14.5

LIQUIDITY RATIO
Working Capital: 2008= 1290, 2007= 1522.

●Lack of working capital can lead to company failure.

●Current Ratio: 2008 = 1.35 2007 = 1.58

●Good sign that current ratio is greater than 1.

●Receivable Turnover: 2008 = 6.65 2007 = 7.06

●Taking the company longer to turn receivables
into cash during the accounting period.
●Avg. Days Sales Uncollected: 2008 = 54.89 2007 = 51.70

●Increase means it took them longer to collect their payments.

● Inventory Turnover: 2008 = 2.78

2007 = 3.33
●Taking longer to sell their inventory.

Avg. Days Inventory On Hand: 2008

●

= 131.29
2007 = 109.61

PROFITABILITY RATIO

Profit Margin: 2008 = 6% 2007 =

●

5.4%
●On each dollar of net sales adidas Group earns 6 cents.

● Asset Turnover: 2008 = 1.13

2007 = 1.24
●Shows they could maybe use their assets more productively.

● Return on Assets: 2008 = 6.8%

2007 = 6.7%
● Return on Equity: 2008 = 18.9%
2007 = 18.2%
●Increase shows the company is now making
18.9 cents for every dollar stockholders invest
in the company.
SOLVENCY RATIO
Debt to Equity: 2008 = 1.81
●

2007 = 1.75
MARKET STRENGTH RATIO
Div. Yield: 2008 = 0.18%2007 = .
098%
●Increase shows the stock is returning more to the investor.

Price/Earnings Ratio: 2008 =

●

4.292007 = 9.71
●Major decrease displays the investors are
losing confidence in the company future.
Annual Financials for NIKE Inc
05/2010 05/2009 05/2008 05/2007
All amounts in millions except per share amounts.
(TTM) (TTM) (TTM) (TTM)
Assets
Cash and Equivalents 3,079.10 2,291.10 2,133.90 1,856.70
Restricted Cash 0.00 0.00 0.00 0.00
Marketable Securities 2,066.80 1,164.00 642.20 990.30
Accounts Receivable 2,649.80 2,883.90 2,795.30 2,494.70
Loans Receivable 0.00 0.00 0.00 0.00
Other Receivable 0.00 0.00 0.00 0.00
Receivables 2,649.80 2,883.90 2,795.30 2,494.70
Raw Materials 0.00 0.00 0.00 0.00
Work In Progress 0.00 0.00 0.00 0.00
Purchased Components 0.00 0.00 0.00 0.00
Finished Goods 0.00 0.00 0.00 2,121.90
Other Inventories 2,040.80 2,357.00 2,438.40 0.00
Inventories -Adj Allowances 0.00 0.00 0.00 0.00
Inventories 2,040.80 2,357.00 2,438.40 2,121.90
Prepaid Expenses 873.90 765.60 602.30 393.20
Current Deferred Income Taxes 248.80 272.40 227.20 219.70
Other Current Assets 0.00 0.00 0.00 0.00
Total Current Assets 10,959.20 9,734.00 8,839.30 8,076.50
Gross Fixed Assets (Plant, Prop. & Equip.) 4,389.80 4,255.70 4,103.00 3,619.10
Accumulated Depreciation & Depletion 2,457.90 2,298.00 2,211.90 1,940.80
Net Fixed Assets 1,931.90 1,957.70 1,891.10 1,678.30
Intangibles 467.00 467.40 743.10 409.90
Cost in Excess 187.60 193.50 448.80 130.80
Non-Current Deferred Income Taxes 873.60 897.00 520.40 392.80
Other Non-Current Assets 0.00 0.00 0.00 0.00
Total Non Current Assets 3,460.10 3,515.60 3,603.40 2,611.80

Total Assets 14,419.30 13,249.60 12,442.70 10,688.30

Liabilities
Accounts Payable 1,254.50 1,031.90 1,287.60 1,040.30
Notes Payable 138.60 342.90 177.70 100.80
Short Term Debt 7.40 32.00 6.30 30.50
Accrued Expenses 0.00 0.00 0.00 0.00
 Accrued Liabilities 1,904.40 1,783.90 1,761.90 1,303.40
Deferred Revenues 0.00 0.00 0.00 0.00
Current Deferred Income Taxes 0.00 0.00 0.00 0.00
Other Current Liabilities 59.30 86.30 88.00 109.00
Total Current Liabilities 3,364.20 3,277.00 3,321.50 2,584.00
Long Term Debt 445.80 437.20 441.10 409.90
Capital Lease Obligations 0.00 0.00 0.00 0.00
Deferred Income Taxes 855.30 842.00 854.50 668.70
Other Non-Current Liabilities 0.30 0.30 0.00 0.00
Minority Interest 0.00 0.00 0.00 0.00
Preferred Securities of Subsidiary Trust 0.00 0.00 0.00 0.00
Preferred Equity outside Stock Equity 0.30 0.30 0.30 0.30
Total Non-Current Liabilities 1,301.70 1,279.80 1,295.90 1,078.90

Total Liabilities 4,665.90 4,556.80 4,617.40 3,662.90

Stockholder's Equity
Preferred Stock Equity 0.00 0.00 0.00 0.00
Common Stock Equity 9,753.40 8,692.80 7,825.30 7,025.40
Common Par 2.80 2.80 2.80 2.80
Additional Paid In Capital 3,440.60 2,871.40 2,497.80 1,960.00
Cumulative Translation Adjustment 0.00 0.00 356.40 234.30
Retained Earnings 6,095.50 5,451.40 5,073.30 4,885.20
Treasury Stock 0.00 0.00 0.00 0.00
Other Equity Adjustments 214.50 367.20 -105.00 -56.90

Total Equity 9,753.40 8,692.80 7,825.30 7,025.40

Total Capitalization 10,199.20 9,130.00 8,266.40 7,435.30

Total Liabilities & Stock Equity 14,419.30 13,249.60 12,442.70 10,688.30

Additional Data
Cash Flow 2,302.20 1,870.00 2,204.90 1,761.70
Working Capital 7,595.00 6,457.00 5,517.80 5,492.50
Free Cash Flow 2,323.70 813.70 749.10 1,221.50
Invested Capital 10,199.20 9,130.00 8,266.40 7,435.30

Share Data
Shares Outstanding Common Class Only 484.00 485.50 394.30 384.10
Preferred Shares 0.00 0.00 0.00 0.00
Total Ordinary Shares 0.00 0.00 0.00 0.00
Total Common Shares Outstanding 484.00 485.50 491.10 501.70
Treasury Shares 0.00 0.00 0.00 0.00