Amount of working capital, Managerial Accounting

Number of Operating Cycles: The number of operating cycles in a period is determined by dividing the number of days in a year i.e.365 by the length of net operating cycle. Expressed as formula-

No. of Operating Cycles = 365/Operating Cycle Period

Amount of Working Capital: One time the operating expenses and the number of operating cycles have been determined, the amount of actual working capital required is calculated by dividing the total operating expenses for the period through the number of operating cycles in such period.

For illustration, if the total operating expenses for the number of operating cycles in a year and the year amounts to Rs. 45,000 are assumed to be 3, the amount of working capital would be as Rs.15,000 that is Rs.45000/3.

Instead, the working capital may be determined by using the subsequent formula:

WC =  C + (OC/ N) . CS

Here WC = Working Capital

C = Cash Balance Required

OC = Operating Cycle Period

CS = Estimated Cost of Goods sold

N = Number of days in year

Posted Date: 4/9/2013 3:19:10 AM | Location : United States

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