Q. Calculate ADs working capital cycle?
AD, a manufacturing entity, has the following balances at 30 April 2005:
Extract from financial statements: $000
Trade receivables 216
Trade payables 97
Revenue (all credit sales) 992
Cost of sales 898
Purchases in year 641
Inventories at 30 April 2005:
Raw materials 111
Work in progress 63
Finished goods 102
Calculate AD's working capital cycle.
Solution:
Average time raw materials are in stock
(Raw materials / purchases) x 365 days
(111 / 641) x 365 = 63.2 days
Time taken to produce goods
(Work in progress & finished goods / cost of sales) x 365 days
(63 + 102 / 898) x 365 = 67.1 days
Time taken by customers to pay for goods
(Trade receivables / credit sales) x 365 days
(216 / 992) x 365 = 79.5 days
Period of credit taken from suppliers
(Trade payables / purchases) x 365 days
(97 / 641) x 36 = 55.2 days
Working capital cycle = 63.2 + 67.1 + 79.5 -55.2 = 154.6 days