CA Intermediate · Financial Management and Strategic Management · Introduction to Working Capital Management
Rohan Engineering has an annual cash operating cost of ₹36,00,000 (assume a 360-day year, cost accrues evenly). Debtors are given 30 days credit, finished goods stock is held for 15 days, and creditors allow 20 days. For simplicity, all three are measured on the annual cash operating cost. The net working capital required is:
Net working capital required is ₹2,50,000. Daily cost is ₹10,000, so debtors are ₹3,00,000 and finished goods ₹1,50,000, totalling ₹4,50,000 of current assets. Deducting creditors of ₹2,00,000 gives ₹2,50,000.
- A₹2,50,000Correct
- B₹4,50,000
- C₹6,50,000
- D₹1,00,000
Explanation
Cost per day = 36,00,000/360 = ₹10,000. Debtors = 30 × 10,000 = ₹3,00,000; finished goods = 15 × 10,000 = ₹1,50,000; creditors = 20 × 10,000 = ₹2,00,000. Net working capital = 3,00,000 + 1,50,000 − 2,00,000 = ₹2,50,000. Ignoring creditors gives ₹4,50,000, which is wrong.
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