Analysing changes in working capital, Cost Accounting

By understanding the financial statements of a company, one of the first steps considered is the study of the changes in current financial position of the company and the purpose for the changes. We make a try studying these changes and their causes through using the data contained in the summarized comparative balance sheet.

Illustration

Tools India Limited

Balance Sheet as on December 31, 2003

(Rs. in Millions)

 

1703_ANALYSING CHANGES IN WORKING CAPITAL.png

 

As we have study previously that at the beginning of this section, the net change in working capital can be calculated easily by subtracting the net working capital at the ending of the year by the net working capital at the start of the year.

TOOLS INDIA LTD

Change in Working Capital

(Rs. in Millions)

December 31, 2002           December 31, 2003

Current assets

180.00

 

232.00

Less: Current Liabilities

80.00

 

105.00

Working Capital

100.00

 

127.00

Working capital on December 31, 2003

 

127.00

 

Working Capital on December 31, 2002

 

100.00

 

Increase in Working Capital

 

27.00

 

The Rs. 27 million rises in working capital of TIL demonstrating the composite changes in the operating assets. It does not tell us much in terms of the business' operations. Such change could be the net result of changes in all the accounts covered through current items. May be there has been qualitative changes resulting by the depletion of liquid items of current assets and raise in non-liquid items as inventory. So as to answer these questions we try to analyze the changes in all of the working capital accounts.

Posted Date: 4/9/2013 1:47:35 AM | Location : United States







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