Working capital

The capital of a business which is used in its day-to-day trading

operations, calculated as the current assets minus the current liabilities.

OBJECTIVES
 Smooth operating Cycle.
 Lowest Working capital requirement.
 Optimal return on current assets.
 Minimal the rate of interest.

Operating Cycle
The operating cycle is the average period of time required for a
business to make an initial outlay of cash to produce goods, sell the
goods, and receive cash from customers in exchange for the goods.
Operating cycle equation

CASH CYCLE
The cash cycle is a metric that expresses the time (measured in days) it
takes for a company to convert its investments in inventory and other
resources into cash flows sales
Current Ratio
The current ratio is a liquidity ratio that measures a company's ability to
pay short-term obligations or those due within one year. It tells
investors and analysts how a company can maximize the current
assets on its balance sheet to satisfy its current debt and other payables
 STYLIN - Working capital

Profit & Loss (in thousands) Balance sheet Beginning End days
Account Data Days(in (in thousands)
thousands)

Revenues 50 Inventory 5 10

Expenses 15 Accounts 4 8
Receivables

COGS 8 Accounts Payables 10 14

Inventory Period & Accounts Receivable Period

Inventory period-
Average Inventory = (5000+10000)/2 = 7500
Annual COGS/365 = 21.91
Inventory Period=338 days

Accounts Receivable Period-

Average Accounts Receivable= (4000+8000)/2 = 6000
Annual Revenues/365=50000/365 = 136.98
Accounts Receivables Period=44 days
Accounts Payable
Operating Cycle & Cash Cycle
Accounts Payable Period
Average Accounts Payable= (10000+14000)/2 =12000
Annual COGS/365=21.91
Accounts Payable Period = 547 days
OPERATING CYCLE=Inventory Period + Accounts Receivable Period
381days
CASH CYCLE= Operating Cycle - Accounts Payable Period= -166 days
CR8
Profit & Loss (in thousands) Balance sheet Beginning of End of the
Account Data the month month
Revenue 60 Inventory 6 12
Expenses 20 Accounts 7 14
Receivables

COGS 10 Accounts 12 16
Payables

Inventory Period & Accounts Receivable Period

Inventory period
Average Inventory = (6+12)/2 =9000
Annual COGS/360=28
Inventory Period= 321 days

Accounts Receivable Period

Average Accounts Receivable= (7+14)/2 = 10.5
Annual Sales/360= 29
Accounts Receivables Period= 362days

Accounts Payable
Operating Cycle & Cash Cycle
Accounts Payable Period
Average Accounts Payable= (12+15)/2 = 13.5k
Annual COGS/360=28
Accounts Payable Period=482 days

OPERATING CYCLE=
Inventory Period + Accounts Receivable Period
days=683
CASH CYCLE=Operating Cycle - Accounts Payable Period
=201

Cut & Style

Profit & IN Balance DAYs DAYS
Loss THOUSANDS Sheet Beginning End
Account Data
Data
Revenue 100 Inventory 8 12
Expenses 40 Accounts 9 14
Receivable
COGS 20 Accounts 12 15
Payable

Operating cycle & Cash cycle

Inventory Period= 176days
Accounts Receivable Period = 205 days
Accounts Payable Period = 241 days
Operating Cycle = 381 days
Cash Cycle= 140 days

Shine on
Profit & Loss IN THOUSANDS Balance Sheet Beginnig End
Account Data Days Days
Data
Revenue 30 Inventory 2 4
Expenses 12 Accounts 3 4
Receivable
COGS 6 Accounts 4 5
Payable

Operating cycle & Cash cycle

Inventory Period= 176days
Accounts Receivable Period = 205days
Accounts Payable Period =264 days
Operating Cycle = 381 days
Cash Cycle= 117 days
Geetanjali Studios

Profit & IN THOUSANDS Balance Beginning End

Loss Sheet Data Days Days
Account
Data
Revenue 150 Inventory 15 20
Expenses 80 Accounts 12 16
Receivable
COGS 60 Accounts 10 14
Payable

Operating cycle & Cash cycle

Inventory Period= 104days
Accounts Receivable Period = 84 days
Accounts Payable Period = 72days
Operating Cycle = 188days
Cash Cycle= 116days