Welcome to this article whose sole purpose is to help you progress with corrected exercises on the functional assessment 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 9 corrected exercises on the functional assessment on this page mainly focus on the creation and calculation of the functional balance sheet, the calculation of overall net working capital, and net cash.
You will also find corrected exercises on the following concepts: the calculation of current liabilities, current assets, working capital requirement (WCR), cash flow, etc.
Download the article in pdf format
Statement 1: Outdoor Equipment
The company “Outdoor Equipment” is a retailer specializing in outdoor equipment. Their business includes the sale of products such as tents, sleeping bags, outdoor clothing, and camping accessories. You are responsible for assessing the financial health of the company based on its operating balance sheet for the year 2020.
Here is the data extracted from the company's balance sheet:
– Fixed assets: €150
– Stock: €20
– Customer receivables (average recovery period of 60 days): €30
– Cash and bank availability: €10
– Equity: €110
– Financial debts (average repayment over 5 years): €50
– Supplier debts (average payment period of 30 days): €40
– Other debts: €10
Work to do :
1. Calculate the total current assets.
2. Calculate the total current liabilities.
3. Calculate the working capital requirement (WCR).
4. Calculate the company's cash flow.
5. Based on this information, assess the financial situation of the company.
Proposed correction:
1. The company's current assets are the sum of inventories, accounts receivable and cash. Therefore, it is €20 + €000 + €30 = €000.
2. Current liabilities are the sum of trade payables and other payables. Therefore, it is €40 + €000 = €10.
3. The WCR is calculated by subtracting the current liabilities from the current assets. Therefore, it is €60 – €000 = €50.
4. The company's cash flow is calculated by subtracting the WCR from the current assets. Therefore, it is €60 – €000 = €10.
5. The company has current assets that cover its current liabilities, indicating that it has enough cash to cover its short-term commitments. However, with a WCR of €10, this indicates that the company needs more cash to cover its operating cycle. Furthermore, although the company has a positive cash flow, it is still financially indebted to the tune of €000, which could be a long-term concern. Managers can consider ways to increase sales or reduce costs to improve the company's financial position.
Statement 2: AutoDream
The company AutoDream, which specializes in the sale of electric cars, has completed its financial year. Its financial data at the end of this financial year are as follows:
Total Fixed Assets: €150
Total Current Assets: €60
Stock: €20
Receivables: €20
Availability: €20
Total Equity: €100
Total long-term debts: €60
Supplier debts: €20
Tax and social security debts: €10
Financial debts: €20
Work to do :
1) Calculate the balance sheet total.
2) Calculate the total liabilities.
3) What is the value of the working capital requirement (WCR)?
4) Calculate the working capital (WC).
5) What is the company's cash flow situation?
Proposed correction:
1) The balance sheet total is the sum of fixed assets and current assets. Therefore, €150 + €000 = €60.
2) Total liabilities are the sum of equity and debt. So, €100 + €000 + €60 + €000 + €20 = €000.
3) The WCR (Working Capital Requirement) is the difference between non-cash current assets (Current Assets – Cash) and operating liabilities (Trade payables + Tax and social security liabilities). Therefore, (€60 – €000) – (€20 + €000) = €20.
4) Working Capital (WC) is the difference between fixed resources (Equity + Long-term debt) and Fixed Assets. Therefore, (€100 + €000) – €60 = €000.
5) The cash position is calculated by subtracting the WCR from the FR. Therefore, €10 – €000 = €10. The company AutoDream has a balanced cash position, which means that its financial resources (Working Capital) are sufficient to cover its operating cycle (Working Capital Requirement).
Statement 3: The Delights of the Garden
You are the financial manager of the company "Les Délices du Jardin", a company specializing in the sale of organic fruits and vegetables. At the end of the fiscal year, you prepare the company's functional balance sheet. Here is the information you have:
– Fixed Assets: €50
– Stocks: €10
– Receivables: €5
– Active Treasury: €2
– Capital: €35
– Financial debts over one year: €10
– Financial debts within one year: €5
– Cash Liabilities: €7
Work to do :
1. What are the total assets of the company?
2. What are the company's total liabilities?
3. What is the value of the company's working capital (WC)?
4. What is the value of the company's working capital requirement (WCR)?
5. Is the company in good financial health?
Proposed correction:
1. The total assets of the company are the sum of Fixed Assets, Inventories, Receivables and Cash Assets. So €50 + €000 + €10 + €000 = €5
2. The total liabilities of the company are the sum of Capital, Financial debts due in more than one year, Financial debts due in less than one year and Cash Liabilities. So €35 + €000 + €10 + €000 = €5
3. Working Capital (WC) is the difference between stable resources (Capital + Financial debts over one year) and Fixed Assets. Therefore (€35 + €000) – €10 = -€000
4. Working Capital Requirement (WCR) is the difference between non-cash current assets (inventories + receivables) and short-term liabilities. Therefore (€10 + €000) – €5 = €000
5. The company is not in good financial health because the working capital is negative and the working capital requirement is positive, which indicates the company's inability to cover its short-term needs with its stable resources.
Download the article in pdf format
Statement 4: BioPharma Ltd
We are at "BioPharma Ltd", a company specializing in the production and sale of biopharmaceutical products. Here is part of its balance sheet at the end of year N:
– Fixed assets: €1
– Stocks: €300
– Receivables: €400
– Active treasury: €100
– Capital: €1
– Financial debts: €600
– Operating debts: €200
– Cash flow liabilities: €200
At the end of year N+1, the company reports the following figures:
– Fixed assets: €1
– Stocks: €350
– Receivables: €450
– Active treasury: €150
– Capital: €1
– Financial debts: €700
– Operating debts: €250
– Cash flow liabilities: €400
Work to do :
1. Calculate the working capital (WC) for both years.
2. Calculate the working capital requirement (WCR) for the two years.
3. Calculate the cash flow (T) for the two years.
4. Analyze the evolution of the financial situation of BioPharma Ltd between year N and N+1.
5. Propose recommendations to BioPharma Ltd to improve its financial situation.
Proposed correction:
1.
– FR(N) = Total stable resources – Total stable jobs = (€1 (capital) + €000 (financial debts)) – €000 (fixed assets) = €600
– FR(N+1) = (€1 (capital) + €000 (financial debts)) – €000 (fixed assets) = €700
2.
– BFR(N) = Total operating uses – Total operating resources = (€300 (stocks) + €000 (receivables)) – €400 (operating debts) = €000
– BFR(N+1) = (€350 (stocks) + €000 (receivables)) – €450 (operating debts) = €000
3.
– T(N) = FR(N) – BFR(N) = €400 – €000 = -€500
– T(N+1) = FR(N+1) – BFR(N+1) = €300 – €000 = -€550
4. The analysis shows that the financial position of BioPharma Ltd has deteriorated between year N and year N+1. Working capital has decreased, working capital requirement has increased, and cash flow has become negative and has further decreased, which means that the company is having difficulty financing its operating cycle.
5. To improve its financial position, BioPharma Ltd could seek to increase its stable resources (for example by increasing its capital or by contracting new long-term financial debts), reduce its stable employment (by selling some of its fixed assets), or better manage its operating cycle to reduce its working capital requirement (by reducing its inventories and its customer payment terms or by increasing its supplier payment terms).
Statement 5: Moonlight
The company "Éclair de Lune" is a precious jewelry business located in the heart of Paris. It achieves a significant turnover thanks to the sale of platinum, gold and silver jewelry, with a local and international clientele.
You are in charge of the financial department and your superior has sent you the balance sheet below for the year ending December 31, 2021:
| Active | Values in € | Passive | Values in € |
|---|---|---|---|
| Intangible assets | 100 000 | Equity (EC) | 200 000 |
| Fixed assets | 200 000 | Financial debts (DF) | 200 000 |
| Current assets (CA) | 400 000 | Operating debts (OD) | 300 000 |
Work to do :
1. Calculate the Total Net Working Capital (FRNG).
2. Determine the Net Cash (NC).
3. Explain what the results obtained from the calculations mean for the financial management of the company.
4. Imagine a scenario where the company might face cash flow problems. What operational management advice would you give to compensate for these deficiencies?
5. What does a negative FRNG indicate? Suggest two actions that management could take to improve this situation.
Proposed correction:
1.
Net Working Capital (NWC) = Equity (EC) + Financial Debt (FD) – Fixed Assets (I).
Where, Fixed assets = Intangible assets + Tangible assets
FRNG = 200 + 000 – (200 + 000) = €100
2.
Net Cash (NC) = Current Assets (CA) – Operating Liabilities (OL)
TN = 400 – 000 = €300
3.
The positive FRNG of €100 indicates that the company has enough permanent capital to finance its fixed assets. This means that there is some permanent capital left to finance some of the current assets.
The TN of €100 indicates that the company can cover its operating liabilities with current assets, which means that it has a balanced cash position.
4.
If the company is facing cash flow problems, it may consider balancing its operating cycle through means such as reducing payment terms granted to customers or negotiating longer payment terms with its suppliers.
5.
A negative FRNG indicates that the company lacks resources to finance its fixed assets. To improve this, management may consider increasing share capital through a capital increase or taking on long-term debt. Additionally, the company may increase its cash-generating activity to generate more profits and improve its working capital.
Download the article in pdf format
Statement 6: Zephyr Tech
You work as a financial management expert for the company "Zephyr Tech". You have been asked to analyze the functional balance sheet to help the company make strategic financial decisions. Here is the key information you have at your disposal:
Stable jobs (fixed assets): €300
Stable resources (equity + long-term financial debts): €220
Current assets (stocks + customer receivables): €200
Current liabilities (supplier debts): €150
Work to do :
1. Calculate the working capital requirement (WCR).
2. Calculate the net working capital (NWC).
3. Determine net cash flow.
4. Evaluate the financial situation of the company.
5. What recommendations could you give to the company based on the analysis of the functional assessment?
Proposed correction:
1. The working capital requirement (WCR) is calculated as the difference between current assets and current liabilities, i.e. €200 – €000 = €150.
2. The net working capital (NWC) is the difference between stable resources and stable uses, i.e. €220 – €000 = -€300.
3. Net cash is calculated as the difference between the FRNG and the WCR, i.e. -€80 – €000 = -€50.
4. The company is in a tight financial position. A negative FRNG indicates that it is using short-term funds to finance long-term investments, which is risky. In addition, a negative net cash position means that it lacks liquidity to cover its current expenses.
5. As the company is in a difficult situation, it must prioritize restoring its cash flow. It could consider renegotiating its debts, increasing its capital, selling some of its non-core assets to raise funds, or improving its inventory and receivables management to reduce WCR. It must also review its investment policy to ensure that long-term projects are financed by stable long-term resources.
Statement 7: BlueSens
BlueSens is a company that manufactures and sells smart measuring sensors. The company experienced significant growth in 2020, which required an increase in its investment in fixed assets and an increase in its working capital. On the other hand, the company suffered a contraction in sales in 2021, which affected its operating income. You are the financial manager of the company and your senior management asks you to analyze the company's functional balance sheet to understand its overall financial position. The company's balance sheet items for the year 2021 are as follows:
– Fixed assets: €300
– Stocks: €80
– Customer receivables: €120
– Availability: €60
– Supplier debts: €150
– Financial debts: €50
– Equity: €360
Work to do :
1. Calculate the company's working capital.
2. Calculate the company's working capital requirement (WCR).
3. Calculate the company's current net cash position.
4. Interpret the results of the calculations made in terms of the company's solvency and liquidity.
5. Suggest improvements to the company's financial management.
Proposed correction:
1. Working Capital (WC) is calculated as follows: Equity – Fixed Assets = €360 – €000 = €300. The company’s working capital is therefore €000.
2. The Working Capital Requirement (WCR) is calculated as follows: (Stocks + Accounts Receivable) – Accounts Payable = (€80 + €000) – €120 = €000. The company’s WCR is therefore €150.
3. Net Cash (NC) is calculated as follows: Working Capital (WC) – Working Capital Requirement (WCR) = €60 – €000 = €50. The company’s current net cash is therefore €000.
4. The company has positive working capital, which means that it has enough resources to cover its fixed assets. Its working capital requirement is also covered. However, net cash is relatively low, which could indicate a liquidity risk if the company fails to generate enough cash from its operations to cover its short-term liabilities.
5. The company could improve its financial management by increasing sales or reducing costs to improve its operating margin and, therefore, its ability to generate cash from its operations. It could also consider negotiating better payment terms with its suppliers to reduce its working capital requirement. By reducing its working capital requirement, the company would increase its net cash position and therefore strengthen its liquidity.
Statement 8: The Gourmet Garden
The company “Le Jardin Gourmand”, specializing in the sale of seasonal fruits and vegetables, closed its financial year on December 31, 2021. You are responsible for analyzing its functional balance sheet.
The company's balance sheet is as follows:
– Fixed assets: €40
– Stock: €10
– Customer receivables: €15
– Availability: €5
– Capital: €30
– Reserves: €10
– Supplier debts: €20
– Tax and social debts: €10
Work to do :
1. What is the amount of Current Assets of the company “Le Jardin Gourmand”?
2. What is the amount of the company's Current Liabilities?
3. What is the amount of permanent capital of the company?
4. What is the company's Net Working Capital (NWC)?
5. What is the company’s Working Capital Requirement (WCR)?
Proposed correction :
1. Current Assets are the sum of inventory, accounts receivable and cash. Therefore, €10 + €000 + €15 = €000
2. Current Liabilities are the sum of supplier debts and tax and social security debts. Therefore, €20 + €000 = €10
3. Permanent Capital is the sum of capital and reserves. Therefore, €30 + €000 = €10
4. Net Working Capital (NWC) is the difference between permanent capital and fixed assets. Therefore, €40 – €000 = €40
5. Working Capital Requirement (WCR) is the difference between current assets and current liabilities. Therefore, €30 – €000 = €30
Statement 9: Green Nugget
The company "Pépite Verte" is a company specializing in the production and distribution of organic food products. In order to face growing competition, it wishes to assess its financial health and its ability to self-finance. To do this, it has provided you with its functional balance sheet for the current year.
Fixed assets: €700
Current assets: €200
Medium and long term debts: €500
Short term debts: €150
Equity: €300
Work to do :
1. Calculate the Working Capital (WC).
2. Calculate the Working Capital Requirement (WCR).
3. Calculate Net Cash (TN).
4. What interpretation can you make of these indicators?
5. What recommendation can you give to the company “Pépite Verte”?
Proposed correction :
1. Working Capital (WC) is calculated by subtracting Medium and Long Term Debts from Equity. That is €300 – €000 = -€500.
2. Working Capital Requirement (WCR) is calculated by subtracting Short-term Debts from Current Assets. That is, €200 – €000 = €150.
3. Net Cash (NC) is the balance of the FR and the WCR. That is -€200 – €000 = -€50.
4. The interpretation of these indicators is not favorable for "Green Pear". A negative FR indicates that the company does not have sufficient stable resources to finance its fixed assets. In addition, a negative TN indicates that the company has liquidity difficulties, i.e. it has difficulty honoring its short-term commitments.
5. To improve its situation, the company could seek to increase its Equity (for example, by increasing its capital) or to reduce its Medium and Long-Term Debts. It could also work to reduce its WCR by optimizing the management of its stocks or by improving the recovery of its receivables.