How to determine Working Capital requirements in a Company?

Example 1: Find out the working capital requirements in PQR Company with the help of following information:

Particulars	Amount in Rs.
Raw material	25 per unit
Labour	22 per unit
Overhead	18 per unit
Output	12000 unit

Raw materials were kept in store for 1 weeks and the work in progress takes 2 weeks to convert into finished goods. The cash balance in a company was Rs.20, 000. The finished goods take 3 weeks to convert into sales. Company sold 45% goods on credit and 6 weeks credit allowed to debtors. 40% of raw materials were purchased from creditors and the company has to pay it within 15 weeks. Material, labour and overhead costs are included in work in progress and finished goods. The selling price of per unit is Rs.80.

Solution:

Particulars	Amount	Amount
Cash balances		20, 000
Raw materials		5,769
Work in progress
Material	11,538.46
Labour	10, 153.84
Overhead	8, 307.69	29, 999.99
Finished goods
Material	17, 307.69
Labour	15, 230.76
Overhead cost	12, 461.53	44, 999.98
Debtors		49, 846.15
Less: Creditors of raw material		34, 615.38
Working capital requirement		1, 15,999.74

Working notes: raw material = 25*12, 000*1/52 = 5, 769

Work in progress:

Material = 25*12, 000*2/52 = Rs.11, 538.46

Labour cost = 22*12, 000*2/52 = Rs. 10, 153.84

Overhead cost = 18*12, 000*2/52 = Rs. 8, 307.69

Finished goods:

Material = 25*12, 000*3/52 = Rs. 17, 307.69

Labour cost = 22*12, 000*3/52 = Rs. 15, 230.76

Overhead cost = 18*12, 000*3/52 = Rs. 12, 461.53

Credit sales = 12, 000*80*0.45 = Rs. 4, 32,000

Debtors amount = Rs. (4, 32,000*6/52) = Rs. 49, 846.15

Creditors amount = 12, 000*25*0.40*15/52 = Rs. 34, 615.38

Example 2: Company ABC wants to determine the working capital requirements in 2017 with the help of given balance sheet of 2015-16:

Liabilities	Amount in Rs.	Assets	Amount in Rs.
Equity capital	3,00,000	Goodwill	2,85,000
Debenture	6,00,000	Machinery	1,65,500
Reserves	90,000	Live stock	1,74,060
Outstanding expenses	10,000	Buildings	3,50,000
Creditors	56,200	Stock	40,000
Bank overdraft	20,360	Debtors	28,000
		Prepaid expenses	15,000
		Cash	19,000
	10,76,560		10,76,560

Sales in the year 2015-16 were Rs.7, 00,000. Find out the working capital relationship with sales method.

Solution:

Particulars	Amount	Percentage with relation to sales
Sales	7, 00,000	100
Current assets:
Stock	40, 000	5.71
Debtors	28, 000	4
Prepaid expenses	15, 000	2.14
Cash	19, 000	2.71
Total current assets	1, 02,000	14.57
Current liabilities:
Outstanding expenses	30, 000	4.28
Bank overdraft	10, 360	1.48
Creditors	56, 200	8.02
Total current liabilities	96, 560	13.79
Working capital requirement	5, 440	0.77

Example 3: Find out the working capital requirements of company AB if the sales value is Rs. 4, 65,200 and variable cost is Rs.  60,000. The fixed cost is Rs. 90,000. The raw material and labour cost Rs. 60, 000 and 58, 000 respectively. The overhead expenses are Rs. 35, 000. The cash balance is Rs. 80,000 and the cash received from debtors are Rs.54, 000.

Solution:

Particulars	Amount
Payments:
Raw material	40, 000
Labour cost	38, 000
Overhead cost	35, 000
Fixed cost	90, 000
Variable cost	60, 000
Total payments	2, 63,000
Receipts:
Cash	80, 000
Cash from debtors	54, 000
Total receipts	1, 34,000
Working capital requirement (Payments – Receipts)	1,29,000
Surplus (receipts – payments)	------

Example 4: From the given balance sheet of Company XYZ Ltd. of 2011-12 find out the working capital requirement:

Liabilities	Amount in Rs.	Assets	Amount in Rs.
Equity capital	5,00,000	Goodwill	3,93,600
Debenture	3,20,000	Machinery	90,460
Reserves	1, 20,000	Live stock	1,94,000
Outstanding expenses	8,000	Buildings	2,50,000
Creditors	66,200	Stock	57,000
Bank overdraft	10,360	Debtors	40,000
Bills payable	20,500	Prepaid expenses	12,000
		Cash	8,000
	10,45,060		10,45,060

Solution:

Particulars	Amount
Current Assets:
Stock	57, 000
Debtors	40, 000
Prepaid expenses	12, 000
Cash	8, 000
Total current assets	1, 17,000
Current Liabilities:
Bills payable	20, 500
Creditors	66, 200
Bank overdraft	10, 360
Outstanding expenses	8, 000
Total current liabilities	1, 05,060
Working capital (current assets – current liabilities)	11, 940