Professional Documents
Culture Documents
Session 9 Working Capital Management
Session 9 Working Capital Management
Session 9 Working Capital Management
What level of net investments must a firm make to support its operating cycle?
Simply, its Working Capital Requirements, WCR
Solvency Vs.
Liquidity
31-Dec-10
10% $8 6%
50% 77 56%
40% 53 38%
$138
38
83% 77 115 83%
$138
uration of its
set over its entire
Balance Sheet
31-Dec-13
Invested Capital or Net Assets
a Cash $6
b Working Capital requirements 59
c Net fixed assets 56
Total Invested Capital or Net Assets $121
Capital employed
d Short term debt $15
Long term financing
e Long term debt 42
f Owner's equity 64 106
Total Capital employed $121
Balance Sheet
31-Dec-14 31-Dec-15
$12 $8
63 77
51 53
$126 $138
$22 $23
34 38
70 104 77 115
$126 $138
Structure of the Managerial Balance Sheet
31-Dec-13 31-Dec-14
Invested capital or net assets
Cash $6 5%
Working Capital requirements 59 49%
Net fixed assets 56 46%
Total Invested Capital or net assets $121
Capital employed
Short term debt $15 12%
Long term financing
Long term debt 42 34
Owner's equity 64 106 88% 70
Total Capital employed $121
How much long term finance is used to fund the firm's working capital requirement?
Net Long term Financing (NLF) = Long-term financing – Net fixed assets
How much short term finance is used to fund the firm's working capital requirement?
The amount of short-term debt in excess of cash is called net short-term financing or NSF
31-Dec-13 31-Dec-14
Working Capital requirements 59 63
31-Dec-14 31-Dec-15
$12 10% $8 6%
63 50% 77 56%
51 40% 53 38%
$126 $138
38
104 83% 77 115 83%
$126 $138
capital requirement?
g capital requirement?
31-Dec-14 31-Dec-15
77
62
15
80.52%
19.48%