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Working Capital Management 191
Exercise 12
V.S.M. Ltd. is engaged in large scale retail business. From the following informations
you are required to forecast their working capital requirements.
Projected Annual Sales Rs. 130 lakhs
Percentage of net profit on cost of sales 25%
Average credit period allowed to debtors 8 weeks.
Average credit period allowed by creditors 4 weeks.
Average stock carrying 8 weeks (in terms of sales requirements).
Add : 10% to computed figures to allow for contingencies.
(MBA/MK Uni. May 2005)
Solution
Sales 1,30,00,000
Gross profit 25% of sales 32,50,000
Cost of goods sold 97,50,000
Statement showing working capital
Current Assets
Particulars
(i) Debtors (97,50,000 x 8 52 ) 15,00,000
(ii) Stock (97,50,000 x 8
52 ) 15,00,000
Total current assets 30,00,000
(–) Current Liabilities
Creditors (97,50,000 x 4 52 ) 7,50,000
Net working capital 22,50,000
Add: Contingencies 10% 2,25,000
Net Working Capital Required 24,75,000
Exercise 13
Prepare an estimate of working capital requirements.
(i) Projected annual sales—80,000 units.
(ii) Selling price Rs. 8 per unit.
(iii) Percentage of profit 20%.
(iv) Credit allowed to debtors—10 weeks.
(v) Credit allowed to suppliers—8 weeks.
(vi) Average stock holding (in terms of sales)—10 weeks.
(vii) Allow 20% for contingencies.
(MFM/Bharathidasan AP, 2002)
Rs.