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    Working capital requirement

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    1. Restate the following balance sheet into managerial balance sheet format. What does working capital requirement (WCR) mean?

    Balance Sheet
    Fiscal Year Ended Dec 31
    1999 2000

    Assets
    Cash and cash equivalents $ 12 $ 20
    Receivables 1,525 2,690
    Inventories 8,061 12,872
    Prepaid expenses 200 101
    Total Current Assets 9,798 15,683
    Fixed Assets 6,353 9,850
    Accumulated Depreciation (1,608) ( 2,173)

    Total Assets $14,543 $23,360

    Liabilities & Stockholders Equity
    Short Term Notes payable $ 1,000 $1,251
    Accounts Payable 3,873 7,104
    Accrued Liabilities 1,826 2,656
    Long Term Debt due in one year 14 20

    Total Current Liabilities 6,713 11,031

    Long Term Debt 3,073 4,448

    Total Liabilities 9,786 15,479

    Stockholders Equity
    Common Stock 230 260
    Paid in Capital 527 750
    Retained Earnings 4,000 6,871

    Total Stockholders Equity 4,757 6,881

    Total Liabilities & Stockholders Equity $14,543 $23,360

    Income Statement
    (In Millions)

    Year Ended
    12/31/00

    Sales $250,000
    Cost of Sales 45,000
    Selling & Administrative 8,321

    Total Operating Expenses 53,321

    Operating Income 196,679

    Interest Costs 307

    Income Before Taxes 196,372

    Income Tax Expense 66,000

    Net Income $ 130,372

    2. Use the balance sheet and income statement provided above and calculate the following for year 2000:
    a) Average collection Period
    b) Inventory Turnover
    c) Comment on the operational efficiency of the firm.

    3. Use the balance sheet provided above and calculate the following (for both years):
    a) Current Ratio
    b) Quick Ratio
    c) Comment on the liquidity of the firm.

    4. Why is the acid test or quick ratio a better measure of liquidity than the current ratio?

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    1. Restate the following balance sheet into managerial balance sheet format. What does working capital requirement (WCR) mean?

    Balance Sheet
    Fiscal Year Ended Dec 31
    1999 2000

    Assets
    Cash and cash equivalents $ 12 $ 20
    Receivables 1,525 2,690
    Inventories 8,061 12,872
    Prepaid expenses 200 101
    Total Current Assets 9,798 15,683
    Fixed Assets ...

    Solution Summary

    This gives the steps for computation of working capital requirement

    $2.19