working capital

management

working capital

1 operaing cycle

buy raw materials

turn this ti WIP
then to finished goods
then sell
then collect

2 days inventory+ days receivables

days inventory

inventory/(sales/365)

days receivables

receivables/ daily sales

cash conversion cycle

days payable

EXAMPLE

days inventory+days receivables -days pa

payable /daily purchases

Jan-01 10000 kgs raw material

paid for this

10

10000 kgs of raw material became wip and then fg

by 5th february
days inventory
I sell them at rs.15 per kg
dso
I collect the money by 15th february
days payable

sales
daily sales

10000*15

daily purchases

150000
3333.33

100000
2857.143
own funds
borrow
cost of working capital

receivables

buy raw materials

turn this ti WIP
then to finished goods
then collect

tory+days receivables -days payable

days inventory

35
10

days payable

receivables
inventory

15

payables

33333.33
116666.6
1500000
42857.145

working capital

107142.74

own funds
cod
cost of working capital

10%
10714.27

coe

problem no.1

days inventory
days receivables
operating cycle

problem no.3

inventory
sales
days inventory
receivables
dso

problem no.5

current

previous

raw material
wip
fg

346500
245800
324500

365800
247600
300240

total inventory
receivables

916800
265440

913640
246870

sales
daily sale s
days inventory
dso
op cycle

2125450
5823.150685
157.440542
45.58357054
203.0241125

2089790
5725.452
159.5752
43.11799
202.6932

6
raw material
wip
fg
total inventory

current
449280
245800
324500
1019580

previous
438960
247600
300240
986800

sales
receivables
payables
purchases

2125450
265440
89000
1154000

2089790
246870
76000
1246000

days inventory
dso
days payable

175.0907808 172.3532
45.58357054 43.11799
28.14991334 22.26324

CCC

192.524438

9 sales
receivable

193.208

5820000
1825000

Dso
reduced dso

114.4544674
109.4544674

new receivables
savings in receivables

1745273.973
79726.0274

current
1396468
764004
1008623
3169095

previous
1436494
810269
982534
3229297

6606401
825050
276633
3586900

6838825
807881
248710
6838825

45.58355601
18099.72877
175.0907453
28.14994703

43.11802
18736.51
172.3532
13.27409

inventory in working capital

3717512

3788468

RIM
WIP
FG
total inventory

1396468
764004
1008623
3169095

11 RIM
WIP
FG
total inventory
annual sales
receivables
payables
annual purchases
dso
daily sales
days inventory
days payable

12

sales
receivables

7134913
1008270.731
276633
3586900

dso
daily sales
days inventory
days payable

51.58
19547.70707
162.1210605
28.14994703
3900732.731

18
SALES
DSO
RECEIVABLES

PROFIT IN SALES

CURRENT
PROPOSED
1255000 1380500
35
120342.5

131775 144952.5

because we are making more profits let us accept the proposed change

2
30
14

payables period

44

cash conversion cycle

1500000
5900000
92.79661
2000000
123.7288

36

10 interest on working capital

interest saved

IMPORTANT

11%
8769.863

PROPOSED

DSO
PAYMENT WITHIN 10 DAYS
PAYMENT WITHIN 37 DAYS

0.4
0.6

502000
828300
1330300

OVERALL

10
37

problem no.19
current
sales
inventory
days inventory

int. on w.c.

proposed
1500000
1500000
250000
225000
60.83
54.75

26250

23625

4567000
1143560
91.39465732
35000

5480400
1372272
101.3946573
42000

445282.5
114356
295926.5

534339
137227.2
355111.8

555000
45
68424.65753
0
555000

666000
28.5
52002.73973
333000
333000

41625
0
6329.81

49950
3330
4810.25

4567000
2535000

5023700
2788500

30
208356.1644

45
343787.6712

savings
25000

2625

problem no.20
sales
ar
dso
bad debts

profit on sales
int. on w.c
net profit

since the new policy results in greater net gains ,

problem no.21
sales
dso
ar
discount on sales
non discount sales
profit on sales
discount
cost of w.c
net profit

problem no.22
sales
purchase
days payables
payables

overall benefit being higher, we should go in for n

consequent to the change in policy as well as the change in volume , the investment is working capital
will come down by 135431.5

problem no.23
dso
sales
receivables
inventory
purchases
payables

discount sales
non discount sales
payables
days payables
discount
bad debts

65780000
2456000
1056000
3567000
357000

78936000
5493080.548
1267200
4280400

0
-28943200

94723200
65780000

357000
36.53069807

428400
36.53069807

0verall

percentage
10
0.3
32
0.7
25.4

0
175000

profit in sales
interest on w.c
overall

problem no. 27
sales
dso
receivables
profit on sales
interest on w.c
overall

5600000
35
536986.3

3570000
10
97808.2

481600
59068.5
422532

307020
10758.9
296261

not it does not worth

problem no.26
present
proposal 1
sales
46500000
expenses
24540000
dep.
1287500

proposal 2
dso

10
30

pbit
int
pbt
taxes
pat

20672500
438350
20234150
9070245
11163905

receivables

1273972.603

problem no.30
sales
dso
receivables

10567000
45
1302781

7396900
25
506636

136791.986
317010

53196.88356
73969

profit on sales

845360

591752

overall

391558

464586

cost of wc
bad debts

yes

esults in greater net gains , we should go in for it

igher, we should go in for new policy

working capital

percentage

70%
30%
16