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182 Financial Management
Percentage of net profit on sales 20%
Average credit period allowed to customers
Average credit period allowed by suppliers
Average stock holding in terms of sales requirements
Allow 10% for contingencies
Solution
Statement of Working Capital Requirements
Current Assets
Debtors (8 weeks) 80,000 × 8
52
(at cost)
80,000 ×12
Stock (12 weeks)
52
Less: Current Liability
Credits (4 weeks) 80,000 × 4
52
8 Weeks
4 Weeks
12 Weeks
Rs.
12,307
18,462
30,770
6,154
24,616
Add 10% for contingencies 2,462
Working Capital Required 27,078
Working Notes
Sales = 10000×10 = Rs. 1,00,000
Profit 20% of Rs. 1,00,000 = Rs. 20,000
Cost of Sales=Rs.1,00,000 – 20,000 = Rs. 80,000
As it is a trading concern, cost of sales is assumed to be the purchases.
Exercise 6
Prepare an estimate of working capital requirement from the following informations of
a trading concern.
Projected annual sales Rs. 6,50,000
Percentage of net profit on sales 25%
Average credit period allowed to debtors
10 Weeks
Average credit period allowed by creditors
4 Weeks
Average stock holding in terms of sales requirements 8 Weeks
Allow 20% for contingencies
(M.Com., M.S. University Nov. 2001)