Net current assets forecasting method, Managerial Accounting

It is the most practical way of estimating working capital needs. In such method, the finance manager gets ready a working capital forecast. While preparing such forecast, firstly an estimate of all the current assets is created on a monthly basis. Hence, estimate of stock of raw materials, amount of raw material which will continue in process, outstanding amount from debtors and stock of finished goods and other receipts will have to be completed. It should be followed through an estimate of current liabilities comprising outstanding payments for rent, wages, material and administrative and the other expenses. The diversity in between the forecasted amount of current liabilities and assets offers the networking capital requirements for the firm.

To such amount, a flat percentage would be added through way of provision for contingencies. The resulting diagram will be the amount of net estimated working capital needed. By this, bank finance is to be subtracted, if obtainable. The left balance will be the amount of working capital which is to be managed through the firm. The way of forecasting working capital requires is 'cash' skill as all transactions are demonstrated on cash cost basis.

Posted Date: 4/9/2013 3:21:19 AM | Location : United States

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