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188 Financial Management
(iv)
(v)
He expects to turnover his stock six times in a year.
The sales and purchases will be evenly spread throughout the year. All sales will
be for cash but he expects one month’s credit for purchases.
Calculate
(i) His estimated profit for the year.
(ii) His average working capital requirements.
Solution
(i) Estimated profit of Mr. Siva for the year
Sales 20,00,000
1
(–) Gross Profit ( 20,00,000 × 33
3
133
1
3
) 5,00,000
Cost of goods sold 15,00,000
Gross Profit 5,00,000
(–) Expenses
Fixed (3,000×12) 36,000
Variable 20,00,000×10/100 2,00,000
2,36,000
Net Profit 2,64,000
(ii) Statement of working capital
Particulars
Rs.
Current Assets
Stock
Turnover of stock is 6 times 2,50,000
Stock Turnover =
Cost of goods sold
Average stock at cost
15,00,000
6 =
Average stock at cost
6 × Average stock at cost = 15,00,000
Average stock at cost = 15,00,000
= 2,50,000
6
Cash
To meet fixed expenses = 3,000
To meet variable expenses
20,00,000 × 10
100 × 1 = 16,667 19,667
12
Debtors
(as all sales are for cash only) –
2,69,667
Less: Current Liabilities:
Creditors (1 months)
15,00,000 × 1
12
1,25,000
Working capital required 1,44,667