Corporate Finance

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Corporate Finance

Deferred Payment Guarantee The banker guarantees payment of the amount to be paid by his customer,
which has been spread or deferred over a period of time. This type of guarantee is normally required when
the customer desires to purchase machinery or goods on credit. Deferred payment guarantees are usually the
non-funded substitutes for term loans.

APPENDIX 2: ESTIMATION OF COMPONENTS OF

WORKING CAPITAL

I.

raw material during the year

Average monthly consumptio ofn

Average stock of raw material(RM)

spares & storage period in days

Average raw material, stores

=

where

Average stock of raw material =

2

opening stock of RM+closing stock of RM

and

2

opening stock of RM Total purchases of RM–closing stock

during the year

consumptio ofn RM

Average monthly

+

=

II.

Average cost daily of production

Average stock of WIP

Conversion time in days=

where

2

opening WIP closing WIP

Average stock of WIP

+

=

Cost of production (COP) = Opening stock WIP + consumption of RM, stores and spares + other

manufacturing costs – closing WIP

and

Average daily COP = COP/365.

III.
Average cost daily of sales

Average stock of finished goods

Finished goods storage period in days=

where

Annual cost of sales = Opening stock of finished goods + COP + Selling and distribution

expenses + Administrative expenses + Financial charges +

Excise duty – Closing stock of finished goods

Average daily cost of sales = Cost of sales/365

and

Average stock of finished goods =

2

Openingstock +Closingstock

IV.

Average daily credit sales

Average balance ofsundry debtors

Average collection period in days=