Estimation of Working Capital 295APPENDIX 7: SELECT ACCOUNTING RATIOS OF WORKING
CAPITAL MANAGEMENT AT VST
1993 1994 1995 1996Current ratio 2.08 2.76 3.98 3.88
Quick ratio 0.73 0.90 2.66 2.82
Working capital turnover ratio 6.59 5.58 4.24 3.32
Inventory turnover 10.16 8.32 12.78 12.11
Debtors turnover 41.06 136.36 19.2 9.98
Average collection period (days) 9 3 19 37
QUESTIONS
- Refer to the data given below and calculate MPBF.
A. Inventory: (Rs lac)
Raw material 35.00
WIP 90.00
Finished goods 285.00
Stores & spares 61.00
B. Book debts 300.00
C. Other current assets 90.68
D. Current liabilities other 245.00
than bank borrowings
E. Minimum net working
capital is 25 percent
of current assets- Calculate the operating cycle.
Raw materials 0.96 months
Stock in progress 1.44 months
Finished goods 5.27 months
Stores and spares 3.63 months
Receivables 4.66 months- Discuss the salient features of the Chore Committee recommendations.
- What are the drawbacks of the cash credit—overdraft system?
- Describe the four methods used by banks for working capital lending.
- What are the limitations of the cash budget approach to working capital lending?
- The current assets and current liabilities of a company are Rs 30 crore and Rs 18 crore respectively. Calculate the maximum
permissible bank finance under the three methods, assuming that the core component of current assets is Rs 24 crore. - A company stores 3 weeks of raw material (Rs 10 lac), 2 weeks of work in process (Rs 15 lac), and 4 weeks of finished
goods (Rs 20 lac). The company has outstanding credits of Rs 25 lac. Expense for one month is Rs 3 lac. The company does
not receive any credit from suppliers. Assume appropriate margin on each of the components and calculate working capital
requirement and bank finance.