FINANCIAL ANALYSIS AND REPORTING I WORKING CAPITAL MANAGEMENT

DE LUNA, REGINA CARLA D. AIME330_AQ1Ar

Working Capital: Estimation and Calculation

1. Thus, if sales for the year 2019 amounted to Php 3,000,000 and working capital required was
Php 600,000; the requirement of working capital for the year 2020 on an estimated sales of Php
4,000,000 shall be Php 700,000; i.e. 0.175 % of Php 4,000,000.
2. The following information has been provided by a company for the year ended Dec 2019.
Liabilities Assets
Equity, share capital 200,000 Net Fixed Assets 300,000
8% Bonds 100,000 Inventories 100,000
Reserves and surplus 50,000 Sundry debtors 70,000
Long-term loans 50,000 Cash and cash 10,000
equivalent
Sundry creditors 80,000
480,000 480,000

Sales for the year ended Dec 2019 amounted to 1,000,000 and is estimated that the same
will amount to 1,200,000 for the year ended 2020.
You are required to estimate the working capital requirements for the year ended 2020
assuming a linear relationship between sales and working capital.
Estimation of Working Capital Requirements
Actual Percentage to Sales Estimate
2019 2019 2020
Sales 1,000,000 100 1,200,000
Current Assets:
Inventories 100,000 10 120,000
Sundry debtors 70,000 7 84,000
Cash and Cash 10,000 1 12,000
Equivalents
Total Current Assets 180,000 18 216,000
Current Liabilities:
Sundry Creditors 80,000 8 96,000
FINANCIAL ANALYSIS AND REPORTING I WORKING CAPITAL MANAGEMENT

DE LUNA, REGINA CARLA D. AIME330_AQ1Ar

Total Liabilities 80,000 8 96,000

Working Capital (CA- 100,000 10 120,000
CL)
3. You are required to calculate the expected working capital requirement by assuming 360 days
in a year.
O perating Cycle( days)
= Cost of Good Sold × + Desisred Cash Balance
360
60
= 4,800,000 × +75,000
360
= 875,000

4. 
Raw Material Conversion Period 80 48 Days
X 36 0
(RMCP) 600
WIP Conversion Period (WPCP) 85
X 36 0 15 Days
2,100
Finished Goods Conversion Period 180
X 36 0 31 Days
(FGCP) 2,100
Debtors Conversion Period (RCP) 350
X 36 0 42 Days
3,000
Total Operating Cycle
136 Days
Less Creditors Conversion Period (DCP) 90
X 36 0 54 Days
600
Creditors Conversion Period (DCP)
82 Days

5. From the following data, compute the duration of operating cycle for each of the two years
and comment on the increase/decrease: (SW No. 1)
Solution:

Year 1 Year 2
1 Raw Material Stock 20,000 27,000
X 36 0 X 36 0
Ave . Raw Material 96,000 1, 350,000
X 36 0
Total Purchase 75 Days 72 Days
FINANCIAL ANALYSIS AND REPORTING I WORKING CAPITAL MANAGEMENT

DE LUNA, REGINA CARLA D. AIME330_AQ1Ar

2 Ave . Creditor 16,000 18 ,000

Creditors Period X 36 0 X 36 0 X 36 0
Total Purchase 96,000 1,350 ,000
60 Days 48 Days
3 Ave . WI P 14,000 8 ,000
Work-In-Progress X 36 0 X 36 0 X 36 0
Total COGS 1,400,000 1, 80 0,000
36 Days 36 Days
4 Finished Goods 21,000 2 4 , 000
X 36 0 X 36 0
Ave . Finished Goods 1,400,000 1, 80 0,000
X 36 0
Total COGS 54 Days 48 Days
5 Ave . Debtors 32,000 50 ,000
Debtors X 36 0 X 36 0 X 36 0
Total Sales 1,600,000 2,00 0,000
72 Days 90 Days
Net Operating Cycle 177 Days 198 Days

5. Regression Analysis Method (Assignment No. 1)

Y=a+bx
Where, y = Working capital (dependent variable)
a=Intercept of the least square
b=Slope of the regression line
x=Sales (independent variable)
You are required to forecast the working capital requirements of the company for the year 2020
taking the estimated sales of 200. The relationship between sales working capital can be
represented by:
y = a +bx
Year Sales (in ‘000) WC (‘000) Xy X2
(x) (y)
2015 60 12 720 3,600
2016 80 15 1,200 6,400
2017 120 20 2,400 14,400
2018 130 21 2,730 16,900
2019 160 23 3,680 25,600
N= 5 x=550 y=91 Xy=10,730 X2=66,900
FINANCIAL ANALYSIS AND REPORTING I WORKING CAPITAL MANAGEMENT

DE LUNA, REGINA CARLA D. AIME330_AQ1Ar

Putting the Values in the equation

91 = 5a + 550 b
10,730 = 550a + 66,900b

Putting the Value b in equation

91 = 5a + 550 x 0.1125
91 = 5a + 61.875
91 – 61.875 = 5a
29.125 = 5a
29.125
=a
5
5.825 = a

Multiplying equation with 110 to get

10010 = 550a + 60,500

Putting the Value, a and b in the equation y=a+bx

y = 5.825 + 0.1125 X 200
y = 27.825
this is the amount of estimated working capital

Subtracting equation
720 = 0 + 6400b
B = 0.1125
FINANCIAL ANALYSIS AND REPORTING I WORKING CAPITAL MANAGEMENT

DE LUNA, REGINA CARLA D. AIME330_AQ1Ar

6.
Requirement: Draw up a statement showing requirements of working capital from month to
month, ignoring the question of stocks.

Statement Showing Requirement of Working Capital

January February March April May June
Payments:
Materials - 14,400 19,200 28,800 33,600 33,600
Wages 21,600 28,800 43,200 50,400 50,400 57,600
Fixed Expenses 30,000 30,000 30,000 30,000 30,000 30,000
Variable Expenses 7,200 9,600 14,400 16,800 16,800 19,200
58,800 82,800 106,800 126,000 130,800 140,400
Receipts:
Cash Sales 24,000 32,000 48,000 56,000 56,000 64,000
A/R - 48,000 64,000 96,000 112,000 112,000
24,000 80,000 112,000 152,000 168,000 176,000
WC Required 34,800 2,800 - - - -
(Payments – Receipts)
Surplus - - 5,200 26,000 37,200 35,600
Cum Req of WC 34,800 37,600 32,400 6,400 - -
Surplus WC - - - - 30,800 66,400