Estimation of working Capital

Requirement

Vineet Jogalekar
1PT10MBA84
Excess of current assets over current
liabilities.
OR
current assets - current liabilities
 Pro-forma of statement of working capital requirements

Particulars Amount Rs.

A.CURRENT ASSETS
Cost of raw-materials XXX
Work-in-process XXX
Cost of finished goods XXX
Debtors XXX
Cash and bank balance XXX
Total Current Assets XXX
B.LESS CURRENT LIABILITIES
Creditors XXX
Any other payments (Wages , Overheads) XXX

Working capital (A-B) XXX

 Example:

Estimate the net working capital requirements by adding 10% for contingencies.
Estimated cost per unit manufactured:
  Rs.
Raw-materials 12
Direct labour 10
Overhead 10
Total cost 32
Selling price per unit is 36
Annual production 1,08,000units
Raw-materials in stock Avg 2 months
Work-in-progress(50% complete) Avg 3 months
Finished goods in stock avg 2 months
Credit allowed by creditors avg 3 months
Credit allowed to customers avg 4 months
Lag in payment of wages avg 1 month
Cash balance to be maintained Rs.1,000,000
 Estimation of working capital requriement
Amount
A.CURRENT ASSETS: Rs.
(i) Raw-material (108,000X12X2/12) 2,16,000
(ii) Work-in-process:
a. Raw-materials (108,000X12X3/12) 3,24,000
b. Director labor (108,000X10X3/12X50%) 1,35,000
c. Overhead expenses (108,000X10X3/12X50%) 1,35,000
(iii) Finished goods in stock (108,000X32X2/12) 5,76,000
(iv) Debtors(108,000X32X4/12) 11,52,000
(v) Cash balance to be maintained 1,00,000
26,38,000
B.CURRENT LIABILITES:
(i) Creditors (1,08,000X12X3/12) 3,24,000
(ii) Lag in the payment of wages (1,08,000X10X1/12) 90,000
22,24,000
ADD: 10% for contingencies +2,22,400
Working capital required 24,46,400
 Estimation of working capital requriement
Amount
A.CURRENT ASSETS: Rs.
(i) Raw-material (3.2X10,00,000X3/12) 8,00,000
(ii) Work-in-process: ( 6.4X10,00,000X2/12) 10,66,666
(iii) Finished goods in stock (6.4X10,00,000X3/12) 16,00,000
(iv) Debtors(6.4X10,00,000X3/12) 16,00,000
50,66,666
B.CURRENT LIABILITES:
(i) Creditors (3.2X10,00,000X4/12) 10,66,666
(ii) Lag in the payment of wages (1.6X10,00,000X0.5/12) 66,666
(iii) Lag in the payment of overheads (1.6X10,00,000X0.5/12) 66,666
38,66,668
ADD: 10% for contingencies 3,86,666
Cash balance to be maintained 2,00,000
Working capital required 44,53,334
THAN
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