Answer Posted / rkesh kumar singh
How to Calculate Working Capital
1. Begin by determining current assets. Current assets are
comprised of cash, marketable securities, accounts
receivable and current inventory. Sum the total value of
each of the above to arrive at the current assets
2. Determine current liabilities. Current liabilities
include accounts payable, accrued expenses, notes payable
and the portion of long-term debt that is classified as
current. Sum all of these accounts to arrive at the current
liabilities figure.
3. Take the total of the current assets and subtract them
from the current assets. The result will be the working
capital. In other words, current assets minus current
liabilities equals working capital.
4. Look at the following example: The company has $100,000
in cash, $50,000 in securities, $10,000 in account
receivable, and $30,000 in inventory. On the current
liabilities side, the company has $60,000 in accounts
payable, $10,000 in accrued expenses, and $20,000 in current
debt. The current assets are $100, 000 + $50,000 + $10,000 +
$30,000 or $190,000.The current liabilities are $60,000 +
$10,000 + $20,000 or $90,000.Take the current assets of
$190,000 and subtract the current liabilities of $90,000 to
arrive at the working capital of $100,000.$190,000 - $90,000
= $100,000.
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Volga is a large manufacturing company in the private sector. In 2007 the company had a gross sale of Rs.980.2 crore. The other financial data for the company are given below: Items Rs. In crore Net worth 152.31 Borrowing 165.47 EBIT 43.17 Interest 34.39 Fixed cost (excluding interest) 118.23 Calculate: a. Debt equity ratio b. Operating leverage c. Financial leverage d. Combined leverage. Interpret your results and comment on the Volga’s debt policy
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