Calculation of WCR: 11 Corrected Exercises

Welcome to this article whose sole purpose is to help you progress with corrected exercises on the calculation of the BFR of the Operational Management subject of the BTS MCO.

If you would like to first see or review the course on the same theme, I invite you to read my article Balance Sheet Analysis: The 4 Essential Points to Know.

The 11 corrected exercises on the calculation of the WCR on this page mainly concern the working capital requirement, the overall net working capital and the calculation of net cash.

Application: Sorbonne Supermarket

States :

Sorbonne Supermarket is a company that operates in the agri-food sector. You are the new assistant manager and your role is to help the financial management team. You have the following for the year 2020:

– Net Working Capital (NRCC): €5000
– Working capital requirement (WCR): €3000
– Net Cash (NC): €1000
– A new investment is planned for a value of €700

Work to do :

1. Explain in your own words what Net Working Capital (NWC) means.
2. Explain in your own words what Working Capital Requirement (WCR) means.
3. Explain in your own words what Net Cash Flow (NCF) means.
4. Calculate the Net Cash Flow (NCF) after the investment of €700.
5. What does it mean when the Net Working Capital (NWC) is greater than the Working Capital Requirement (WCR)?

Proposed correction:

1. Net Working Capital (NWC) reflects the excess of long-term financing available to the company in relation to its investment in stable assets. In other words, it is the safety margin available to the company to face its possible cash deficits in the medium or long term.

2. The Working Capital Requirement (WCR) represents the sum necessary to finance the operating cycle of the company, that is to say the gap between the collection of sales and the disbursement of costs linked to these sales.

3. Net Cash (NC) is equal to the difference between the Net Working Capital (NWC) and the Working Capital Requirement (WCR). It indicates whether the company has positive or negative cash.

4. After the investment of €700, the new Net Cash (NC) will be equal to: Initial NC – investment amount = €1000 – €700 = €300.

5. When the FRNG is higher than the BFR, it means that the company has sufficient cash to cover its operating cycle. This is generally a sign of financial strength.

Summary of the formulas used:

IndicatorFormulas
Global Net Working Capital (GNWC)(Equity + Medium/long term debts) – Fixed assets
Working Capital Requirement (WCR)Non-cash current assets – Non-cash current liabilities
Net Cash (TN)FRNG – BFR

Application: Financial Excellence Business

States :

The company Excellence Financière specializes in financial strategy consulting for SMEs. In order to optimize its own finances, the company decided to study its working capital, its working capital requirement and in particular its net cash flow.

For year n, the financial data of the company Excellence Financière are as follows:
– Fixed assets: €400
– Stock: €60
– Customer accounts: €100
– Accounts payable: €70
– Current assets excluding cash: €230
– Current non-cash liabilities: €150
– Share capital: €200
– Reserves: €50
– Active treasury: €10
– Passive cash flow: €5

Work to do :

1. Calculate the company's net working capital (NWC)?
2. How would you assess the working capital requirement (WCR)?
3. How do you then calculate net cash flow (NCF)?
4. Based on your calculations, what analysis can you make of the company's financial situation?
5. What recommendations would you give to the company to improve its situation?

Proposed correction:

1. FRNG = Fixed assets + Non-cash current assets – Non-cash current liabilities. The calculation gives FRNG = €400 + €000 – €230 = €000.

2. WCR = Current assets excluding cash (inventory + accounts receivable) – Current liabilities excluding cash (accounts payable). The calculation gives WCR = (€60 + €000) – €100 = €000.

3. TN = FRNG – BFR. The calculation gives TN = €480 – €000 = €90.

4. The company has a positive FRNG, which means that it has more long-term resources than long-term uses. The WCR is also positive, which means that the company has more short-term liabilities than short-term receivables. The net cash position is quite high, indicating good financial health for now.

5. In order to further improve its financial situation, the company must seek to reduce its WCR by optimizing the management of its stocks and customer accounts. It can also negotiate longer payment terms with its suppliers.

Summary of Formulas Used:

FormulasExplanation
FRNG = Fixed assets + Non-cash current assets – Non-cash current liabilitiesThis formula calculates the company's overall net working capital
BFR = Current assets other than cash (inventories + accounts receivable) – Current liabilities other than cash (accounts payable)This formula calculates the working capital requirement
TN = FRNG – BFRThis formula calculates the company's net cash flow

Application: Warm Creperie

States :

La Chaleureuse Crêperie started its activities a few years ago. At the end of last year, the company presented the following financial information:

– Equity: €100
– Medium and long-term financial debts: €50
– Fixed assets: €75
– Current assets (excluding cash): €90
– Current liabilities (excluding financial debts): €30

Work to do :

1. Determine the Net Working Capital (NWC) of Chaleureuse Crêperie.
2. Calculate the company’s Working Capital Requirement (WCR).
3. What is the company's Net Cash (NC)?
4. What does the FRNG indicate about the financial health of Chaleureuse Crêperie?
5. What does Net Cash Flow (NCF) mean for business management?

Proposed correction:

1. Net Working Capital (NWC) = Equity + Medium and long-term financial debts – Fixed assets = €100 + €000 – €50 = €000.

2. Working Capital Requirement (WCR) = Current assets (excluding cash) – Current liabilities (excluding financial debts) = €90 – €000 = €30.

3. Net Cash (TN) = FRNG – WCR = €75 – €000 = €60.

4. The FRNG of €75 indicates that Chaleureuse Créperie has sufficient funds to cover its long-term assets. This is a positive indicator that demonstrates a healthy financial position, which can reassure creditors and investors.

5. Net Cash (NC) of €15 shows that the company has sufficient funds to cover its working capital requirement, i.e. to finance its current activities. This ability to generate sufficient cash is a good sign for the company's ability to manage its funds effectively.

Summary of Formulas Used:

DesignationFormulas
Global Net Working Capital (FRNG)FRNG = Equity + Medium and long-term financial debts – Fixed assets
Working capital requirement (WCR)BFR = Current assets (excluding cash) – Current liabilities (excluding financial debts)
Net Cash (TN)TN = FRNG – BFR

Application: TechnoPro Company

States :

The company TechnoPro specializes in the sale of household technology products. You are the financial expert in this company and your role is to analyze and manage the FRNG, the BFR and the TN. You have the following data:

– Stable resources: €350
– Fixed Assets: €200
– Current assets: €270
– Current liabilities: €150

Work to do :

1. Calculate the Total Net Working Capital (TNWC) of the TechnoPro company.
2. Calculate the Working Capital Requirement (WCR) of the TechnoPro company.
3. Calculate the Net Cash Flow (NCF) of the TechnoPro company.
4. Analyze the financial status of the company based on FRNG, BFR and TN.
5. Propose a strategy to improve the company's financial situation.

Proposed correction:

1. The FRNG of the TechnoPro company is calculated by subtracting the Fixed Assets from the Stable Resources. Therefore, FRNG = Stable Resources – Fixed Assets = €350 – €000 = €200.

2. The WCR of the TechnoPro company is calculated by subtracting the Current Liabilities from the Current Assets. Therefore, WCR = Current Assets – Current Liabilities = €270 – €000 = €150.

3. The TN of the TechnoPro company is calculated by subtracting the BFR from the FRNG. Therefore, TN = FRNG – BFR = €150 – €000 = €120.

4. The analysis of the company's financial status is as follows: The positive FRNG shows that the company has a surplus of stable resources to finance its fixed assets. The positive BFR indicates that the company has a surplus of current assets to finance with short-term debts. The positive TN shows that the company has sufficient liquidity to cover its cash requirements.

5. To improve the financial situation of the company, several strategies can be proposed: reduce the WCR by improving the collection of receivables and negotiating better payment terms with suppliers; increase the FRNG by mobilizing more stable resources (for example, issuing shares or long-term loans); finally, to increase the TN, the company can seek to increase its sales or reduce its costs.

Summary of Formulas Used:

FormulasExplanation
FRNG = Stable Resources – Fixed Assets (RAI)This is the formula used to calculate the Net Working Capital
BFR = Current Assets – Current Liabilities (ACP)This is the formula used to calculate the Working Capital Requirement
TN = FRNG – BFRThis is the formula used to calculate Net Cash Flow

Application: Chocolat Gourmet Ltd

States :

Chocolat Gourmet Ltd is a company specializing in the manufacture and sale of high quality chocolates. The company seeks to better understand its financial position, in particular its net working capital (NWC), its working capital requirement (WCR) and its net cash (NC). Here is the financial information available to you:

– Equity: €800
– Stable financial debts: €200
– Fixed assets: €900
– Stocks: €100
– Receivables: €50
– Operating debts: €70

Work to do :

1. Calculate the Net Working Capital (NWC) of Chocolat Gourmet Ltd.
2. Calculate the company’s Working Capital Requirement (WCR).
3. Determine the company's Net Cash (NC).
4. Interpret each of these clues.
5. Suggest actions to improve these indices.

Proposed correction:

1. The FRNG (Net Working Capital) is calculated by subtracting fixed assets from permanent resources. Therefore, FRNG = (€800 + €000) – €200 = €000.

2. The WCR (Working Capital Requirement) is calculated by subtracting operating liabilities from cyclical uses. Therefore, WCR = (€100 + €000) – €50 = €000.

3. Net Cash Flow (NCF) is obtained by subtracting the WCR from the NCF. Therefore, NCF = €100 – €000 = €80.

4. To interpret these clues:
– The positive FRNG of €100 shows that Chocolat Gourmet Ltd has sufficient resources to cover its fixed assets.
– The positive WCR of €80 indicates that the company must finance this sum to cover short-term jobs.
– The positive TN of €20 means that the company has excess cash after financing its operating cycle.

5. To improve these indices, the company could seek to reduce its WCR, for example by reducing inventories or improving debt collection. It could also seek to increase its FRNG, for example by increasing its equity or reducing its fixed assets.

Summary of Formulas Used:

Key ConceptsPackages
FRNG (Global Net Working Capital)Permanent resources (equity + stable financial debts) – Fixed assets
BFR (Working Capital Requirement)Cyclical uses (inventories + receivables) – cyclical resources (operating debts)
TN (Net Cash)FRNG – BFR

Application: DécoStyle Company

States :

DécoStyle is a company that specializes in the sale of decorative items. It achieved a turnover excluding tax of €80.000 for the current year. Purchases consumed amount to €35.000 and operating expenses to €25.000. The company has a working capital requirement (WCR) estimated at €15.000 and a total net working capital (TNWC) of €25.000.

Work to do :

1) Calculate the operating profit of the company DécoStyle.
2) Calculate the margin rate of the DécoStyle company.
3) Calculate the markup rate of the DécoStyle company.
4) What is the financial situation of the company with regard to its financial balance (analysis of FRNG and BFR)?
5) Calculate the net cash flow (NCF) of the DécoStyle company.

Proposed correction:

1) The operating result is calculated by subtracting the purchases consumed and the operating expenses from the turnover excluding tax. This gives €80.000 – €35.000 – €25.000 = €20.000. The operating result of the company DécoStyle is therefore €20.000.

2) The margin rate is calculated by dividing the operating profit by the net turnover and then multiplying the total by 100. This gives (€20.000 ÷ €80.000) x 100 = 25%. The margin rate of the company DécoStyle is therefore 25%.

3) The markup rate is calculated by dividing the operating profit by the net turnover and then multiplying the total by 100. This gives (€20.000 ÷ €80.000) x 100 = 25%. The markup rate of the company DécoStyle is therefore 25%.

4) The company's Net Working Capital (NWC) is €25.000 and its Working Capital Requirement (WCR) is €15.000. As the NWC is higher than the WCR, décoStyle generates excess cash and is therefore in good financial health.

5) Net Cash (NC) is the difference between the FRNG and the WCR. Which gives €25.000 – €15.000 = €10.000. The Net Cash of the company DécoStyle is therefore €10.000.

Summary of Formulas Used:

FormulasDescription
Operating result = Net turnover – Purchases consumed – Operating expensesThe formula for calculating operating profit.
Margin rate = (Operating result ÷ Net turnover) x 100The formula for calculating the margin rate.
Markup rate = (Operating result ÷ Net sales) x 100The formula for calculating the markup rate.
Net cash = FRNG – WCRThe formula for calculating net cash flow.

Application: TechnoComfort

States :

You are the new management controller for TechnoComfort, a manufacturer of innovative hi-tech equipment. Your manager has presented you with the financial statement below and asked you to analyze and evaluate several aspects of the company's financial situation.

Balance sheet as of 31/12/N (in €):

– Assets: Fixed assets €750, Stock €000, Customer receivables €120, Cash €000
– Liabilities: Capital €500, Provisions for risks €000, Supplier debts €50, Tax and social security debts €000

Income statement for year N (in €):

– Operating income: €850, Operating expenses: €000, Operating result: €630

Work to do :

1. Calculate the Total Net Working Capital (FRNG).
2. Calculate the Working Capital Requirement (WCR).
3. Calculate Net Cash (TN).
4. Analyze the financial situation of the company based on the calculated elements.
5. Make a proposal for corrective action if the financial situation of the company is deemed unsatisfactory.

Proposed correction:

1. The Net Working Capital (NWC) is calculated according to the formula: NWC = Stable resources (Capital + Provisions for risks) – Fixed assets. Therefore, NWC = €500 + €000 – €50 = -€000.

2. The Working Capital Requirement (WCR) is calculated using the formula: WCR = Current assets (Stock + Accounts receivable) – Operating liabilities (Accounts payable + Tax and social security liabilities). Therefore, WCR = €120 + €000 – (€130 + €000) = -€200.

3. Net Cash (NC) is calculated by the formula: NC = FRNG – BFR. Therefore, NC = -200€ – (-000€) = 230€.

4. Analyzing the financial situation of the company, it is clear that it has a financial imbalance marked by a negative FRNG and a negative WCR. Cash flow is positive, which means that the company is able to meet its short-term obligations.

5. However, to correct the imbalance, the company should consider either increasing its stable resources by increasing capital, obtaining long-term borrowing or reducing fixed assets, or decreasing its current assets by reducing inventory and receivables.

Summary of Formulas Used:

ConceptFormulas
Global Net Working Capital (GNWC)FRNG = Stable Resources – Fixed Assets
Working Capital Requirement (WCR)BFR = Current assets – Operating liabilities
Net Cash (TN)TN = FRNG – BFR

Application: The Enchanted Gardens

States :

The company "Les Jardins Enchantés" is a company specializing in the sale of plants and gardening accessories. During the year 2021, the company experienced a significant evolution in its commercial and economic exchanges. The company's management wishes to evaluate its working capital requirement (WCR), its net cash flow (TN) and finally its overall net working capital (FRNG).

The information given is as follows:

– Stock as of January 1, 2021: €15
– Stock as of December 31, 2021: €30
– Trade receivables as of January 1, 2021: €70
– Trade receivables as of December 31, 2021: €90
– Supplier debts as of January 1, 2021: €50
– Trade payables as of December 31, 2021: €60
– The 2021 net situation is €120

Work to do :

1. How is the Total Net Working Capital (TNWC) calculated?
2. Calculate the working capital requirement of the company Les Jardins Enchantés as of December 31, 2021.
3. Calculate the FRNG of the company Les Jardins Enchantés as of December 31, 2021.
4. How is Net Cash (NC) calculated?
5. Calculate the TN of the company Les Jardins Enchantés as of December 31, 2021.

Proposed correction:

1. Net working capital (NWC) corresponds to the difference between stable resources (equity + medium and long-term debts) and fixed assets (fixed assets). It is an indicator of the medium and long-term solvency of the company.

2. The WCR as of December 31, 2021 is calculated by adding inventory and customer receivables and then subtracting supplier debts as of that date. Here, (€30 + €000) – €90 = €000. The WCR is therefore €60.

3. The FRNG is calculated by subtracting the amount of the WCR from the amount of the net position. Here, €120 – €000 = €60. The FRNG is therefore €000.

4. Net cash (NC) is the difference between the amount of available cash and short-term financial liabilities (bank debts and loans). It represents the liquidity of the company.

5. In this exercise, without additional information regarding available cash and short-term financial liabilities, we cannot calculate Net Cash. However, the formula would be: TN = Available Cash – Short-term Financial Liabilities.

Summary of Formulas Used:

FormulasDescription
FRNG = Net situation – WCRGlobal Net Working Capital
WCR = (Stock + Customer receivables) – Supplier debtsNeed in funds
TN = Available liquidity – Short-term financial debtsNet Cash

Application: Chocodélice Company

States :

The company Chocodélice specializes in the sale of artisanal chocolates. It wants to improve its cash flow management.

The financial information relating to the company Chocodélice for the year 2020 is as follows:

– The Net Working Capital (NRCC) is €275.
– The Working Capital Requirement (WCR) amounts to €135.
– Net Cash (NC) is €90.

The company expects a 10% increase in its FRNG for the year 2021 as it plans to invest in new machinery.

Work to do :

1. What is FRNG, BFR and TN?
2. Calculate the expected FRNG for the year 2021.
3. Assuming that the BFR remains unchanged, calculate the expected TN for 2021.
4. What is the impact of the increase in FRNG on TN?
5. Analyze and evaluate the implications of these results for the company's cash management.

Proposed correction:

1. The Net Working Capital (NRWC) represents the excess of stable resources over fixed assets. It is an indicator of the financial autonomy of the company. The Working Capital Requirement (WCR) expresses the financing needs of the company to cover the gaps between receipts and disbursements. The Net Cash (NC) is obtained by the difference between the NWC and the WCR.

2. The FRNG for the year 2021 can be calculated using the formula: FRNG 2021 = FRNG 2020 + (FRNG 2020 x Increase rate) or FRNG 2021 = €275 + (€000 x 275%) = €000.

3. The TN forecast for 2021, assuming that the WCR remains unchanged, is calculated using the formula: TN 2021 = FRNG 2021 – WCR or TN 2021 = €302 – €500 = €135.

4. Increasing the FRNG has the effect of increasing the TN, which means that the company has more short-term liquidity.

5. These results indicate that the company will have greater financial autonomy in 2021 than in 2020. However, the company must be careful not to overestimate its FRNG increase forecasts in order to avoid excess cash that could be misplaced.

Summary of Formulas Used:

FRNG 2021=FRNG 2020 + (FRNG 2020 x Increase rate)
TN 2021=FRNG 2021 – BFR

Application: Oréades Shoes

States :

The company "Les Chaussures Oréades", a company selling high-end sports shoes, has had a financially difficult year. Its balance sheet is as follows: stable resources at €500, fixed assets at €000, current assets at €320, current liabilities at €000.

Work to do :

1. Determine the company’s Net Working Capital (NWC).
2. Calculate the Working Capital Requirement (WCR).
3. Deduct the Net Cash (NC).
4. What is the role of the Net Working Capital?
5. What is the impact of an increase in BFR on TN?

Proposed correction:

1. The company’s FRNG is determined by the formula FRNG = Fixed resources – Fixed assets. which gives in our case FRNG = €500 – €000 = €320.

2. The WCR is calculated using the formula WCR = Current assets – Current liabilities. For our company, the WCR is calculated as follows: €150 – €000 = €85.

3. Net Cash (TN) is deduced by the formula TN = FRNG – BFR. So for our case, TN = €180 – €000 = €65.

4. Net Working Capital (NWC) represents the excess of permanent capital over stable uses. It therefore makes it possible to finance the short-term needs of the company, essentially non-cash current assets.

5. An increase in WCR decreases Net Cash (NC) because it means that the company has more short-term needs to finance. This can lead to liquidity difficulties if the NF is not sufficient to cover the increase in WCR.

Summary of Formulas Used:

ConceptFormulas
Global Net Working Capital (FRNG)FRNG = Stable resources – Fixed assets
Working capital requirement (WCR)WCR = Current assets – Current liabilities
Net Cash (TN)TN = FRNG – BFR

Application: The House of Chocolate

States :

La Maison du Chocolat is a company specializing in the manufacture and sale of high-end chocolates. For some time now, the company has been having difficulty managing its financial flows. To try to rectify the situation, the manager decided to call on a financial management expert to analyze its financial situation.

Here is some information provided by the company:
– Turnover: €650
– Cost of production of goods sold: €350
– Initial stock: €15
– Final stock: €20
– Trade receivables at the start of the year: €8
– Accounts receivable at the end of the year: €10
– Supplier debts at the start of the year: €5
– Supplier debts at the end of the year: €4

Work to do :

1. Calculate the company’s Net Working Capital (NWC).
2. Calculate the company’s WCR (Working Capital Requirement).
3. Calculate the company's Net Cash Flow (NCF).
4. Analyze the financial situation of the company based on the results obtained.
5. Propose improvement measures for the company.

Proposed correction:

1. The FRNG is the difference between stable resources (equity + loans over one year) and fixed assets. In the statement, this information is not given. We cannot therefore calculate the FRNG.

2. The WCR is the difference between cyclical uses (inventories + customer receivables) and cyclical resources (supplier payables). Here, the WCR = (20 + 000) – 10 = €000

3. TN is the difference between FRNG and BFR. Since we cannot calculate FRNG, we cannot calculate TN either.

4. Without the FRNG and the TN, it is difficult to establish an accurate diagnosis. However, the fact that the BFR is positive suggests that the company has difficulties in financing its operating cycle.

5. To improve its situation, the company could try to reduce its WCR by reducing its inventories and recovering its trade receivables more quickly. It could also negotiate longer payment terms with its suppliers to increase its cyclical resources.

Summary of Formulas Used:

FRNG FormulaFRNG = Stable Resources – Fixed Assets
BFR formulaBFR = Cyclical jobs – Cyclical resources
TN formulaTN = FRNG – BFR

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