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    CW 9.12.23

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    Aashima Bajaj
    The document defines different types of working capital including gross working capital, which equals current assets, and net working capital, which equals current assets minus current liabilities. It then provides an example calculation of the length of an operating cycle by summing the number of days for raw materials, work in progress, finished goods, and debtors, then subtracting the creditors payment period. The operating cycle length for the example given is 196 days.

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    CW 9.12.23

    Uploaded by

    Aashima Bajaj
    4 views1 page
    The document defines different types of working capital including gross working capital, which equals current assets, and net working capital, which equals current assets minus current liabilities. It then provides an example calculation of the length of an operating cycle by summing the number of days for raw materials, work in progress, finished goods, and debtors, then subtracting the creditors payment period. The operating cycle length for the example given is 196 days.

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    The document defines different types of working capital including gross working capital, which equals current assets, and net working capital, which equals current assets minus current liabilities. It then provides an example calculation of the length of an operating cycle by summing the number of days for raw materials, work in progress, finished goods, and debtors, then subtracting the creditors payment period. The operating cycle length for the example given is 196 days.

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    © All Rights Reserved
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    4 views1 page

    CW 9.12.23

    Uploaded by

    Aashima Bajaj
    The document defines different types of working capital including gross working capital, which equals current assets, and net working capital, which equals current assets minus current liabilities. It then provides an example calculation of the length of an operating cycle by summing the number of days for raw materials, work in progress, finished goods, and debtors, then subtracting the creditors payment period. The operating cycle length for the example given is 196 days.

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    of 1

    Types of working capital

    1. Gross Working Capital = Current Assets


    2. Net Working = Current Assets – Current Liabilities

    Cash = 1,00,000

    Cash = 50,000 + Raw material 50,000

    Cash= 20,000 + WIP = 80,000

    Finished Goods = 1,00,000

    Debtors (Cost) = 1,00,000

    Cash = 1,00,000

    Calculation of Length of Operating Cycle

    OC = R + W + F + D

    R = Raw materials holding period

    = (Average stock of raw material/ Annual cost of raw material) x 360

    = (25,000/1,00,000) x 360 = 90 days

    W= Work-in-progress period (Production period)

    = (Average Stock of WIP/Annual Cost of Production) x 360

    =(16,000/1,50,000) x 360= 38 days

    F = Finished goods holding period

    = (Average stock of FG/ Annual Cost of Sales) x 360

    = (24,000/ 1,50,000) x 360= 58 days

    D = Debtors Collection Period (Credit period allowed to debtors)

    = (Average debtors/Annual Credit sales) x 360

    =(40,000/1,75,000) x 360= 82 days

    Gross Duration of Operating Cycle (90+38+58+82)= 268 days

    Less C= Creditors Payment Period (Credit allowed by suppliers)

    = (Average Creditors/Annual Credit Purchases) x 360

    = (20,000/ 1,00,000) x 360= (-72 days)

    Net Operating Cycle period 196 days

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