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Net Working Capital Calculations

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You are opening your own business and estimate the following expenses and revenues:
Year 1 Year 2 Year 3
Revenues $900,000 $1,300,000 $1,100,000
Cost of goods sold $550,000 $800,000 $700,000

Accounts payable as a percentage of cost of goods sold........11%
Inventory as a percentage of cost of goods sold..................13%
Cash balance as a percentage of revenues.........................8%
Accounts receivables as a percentage of revenues...............15%
Accrued expenses as a percentage of revenues...................9%
All balances are needed in the year prior to the generation of the revenue and expense.
Please calculate the incremental investment in working capital needed for years 0,1,2,3. (you do not need to calculate the cash flow from operations - you do not have enough information to do this - only the incremental investment in working capital - all working capital accounts are liquidated at book value at the end of year 3)

Year 0_______________ Year 1_______________ Year 2__________________ and Year 3______________

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This response provides a step-by-step solution to compute a net working capital.

See Also This Related BrainMass Solution

Problem 18-16 Dynastatics Corporation: Build financial model

Problem 18-16
Build financial models
The following tables contain financial statements for Dynastatics Corporation. Although the company has not been growing, it now plans to expand and will increase net fixed assets (that is assets net of depreciation) by $200 per year for the next 5 years and forecasts that the ratio of revenues to total assets will remain at 1.5. Annual depreciation is 10 percent of net fixed assets at the start of the year. Fixed costs are expected to remain at $56 and variable costs at 80 percent of revenue. The company's policy is to pay out two-thirds of net income as dividends and to maintain a book debt ratio of 25 percent of total capital.

a. Produce a set of financial statements for 2001. Assume that net working capital will equal 50% of fixed assets.
b. Now assume that the balancing item is debt and that no equity is to be issued. Prepare a completed proforma balance sheet for 2001. What is the projected debt ratio for 2001?

(figures in thousands of dollars)
Revenue $1,800
Fixed costs 56
Variable costs (80% of revenue) 1,440
Depreciation 80
Interest (8% of beginning-of-year debt) 24
Taxable income 200
Taxes (at 40%) 80
Net Income $120
Dividends $80
Retained earnings $40

(figures in thousands of dollars)
1999 2000
Net working capital $400 $400
Fixed assets 800 800
Total assets $1,200 $1,200
Liabilities and shareholders' equity
Debt $300 $300
Equity 900 900
Total liabilities and shareholders' equity $1,200 $1,200

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