Welcome to this article whose sole purpose is to help you progress with exercises corrected on the calculation of the BFR for 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 working capital on this page mainly concern the calculation of overall net working capital and net cash flow.
| Exercise name | Company | Main theme |
|---|---|---|
| Application: Technoweb Company | Technoweb | Calculation of WCR and evolution |
| Application: The House of Chocolate | La Maison du Chocolat | Cash flow assessment |
| Application: Le Bon Vin Company | The Good Wine | Calculation of BCRE, RRE and BFR |
| Application: Truc Corp | Body Thing | Analysis and reduction of BFR |
| Application: TechNov Company | TechNov | Analysis and optimization of BFR |
| Application: VoyageLo travel agency | TravelLo | Analysis and reduction of BFR |
| Application: The Corner Bakery | The Corner Bakery | Calculation and analysis of BFR |
| Application: Omega Company | Omega | WCR analysis and cash management |
| Application: FashionStore Company | FashionStore | Forecasting and analysis of working capital requirement |
| Application: Gourmet Ice Cream | Gourmet Ice Creams | Calculation and interpretation of BFR |
| Application: TechnoPlus Company | TechnoPlus | Calculation and forecasting of WCR |
In this section:
- Application: Technoweb Company
- Application: The House of Chocolate
- Application: Le Bon Vin Company
- Application: Truc Corp
- Application: TechNov Company
- Application: VoyageLo travel agency
- Application: The Corner Bakery
- Application: Omega Company
- Application: FashionStore Company
- Application: Gourmet Ice Cream
- Application: TechnoPlus Company
Application: Technoweb Company
States :
The Technoweb company is a company specializing in the sale of electronic items. At the end of the 2020 financial year, it provided the following data:
– Stock of goods: €12
– Customer receivables: €25
– Supplier debts: €10
In addition, the company expects a 10% increase in its trade receivables for the year 2021.
Work to do :
1. Calculate the working capital requirement (WCR) for the year 2020.
2. Determine the change in WCR for the year 2021 by considering the increase in trade receivables.
3. What does an increase in WCR mean?
4. What are the ways for the company to reduce its WCR?
5. Why is it important for a company to control its WCR?
Proposed correction:
1. The working capital requirement (WCR) is calculated by subtracting supplier debts from total inventories and customer receivables. For the year 2020, the working capital of the company Technoweb is therefore (€12000 + €25000) – €10000 = €27000.
2. If customer receivables increase by 10% in 2021, this means that they will amount to €25000 + (€25000 x 10 ÷ 100) = €27500. The WCR for 2021 will therefore be (€12000 + €27500) – €10000 = €29500.
3. An increase in WCR means that the company needs more funds to finance its operating cycle. This may be due to an increase in inventory or receivables, or a decrease in debts.
4. Ways for a company to reduce its WCR may include reducing its inventories, accelerating its customer collections or extending payment terms from its suppliers.
5. Mastering your WCR is important for a company because it represents the resources necessary to finance its operating cycle. A high WCR can mean significant immobilization of funds, potentially causing financial difficulties.
Summary of Formulas Used:
| Formulas | Description |
|---|---|
| WCR = (Stock + Customer receivables) – Supplier debts | Formula for calculating working capital requirements (WCR) |
| Evolution of trade receivables = Trade receivables + (Trade receivables × rate of increase ÷ 100) | Formula for calculating the change in trade receivables in the event of a planned increase |
Application: The House of Chocolate
States :
La Maison du Chocolat is a company specializing in the sale of luxury chocolates and confectionery. The company has closed its financial year and you, as a financial management expert, need to assess its cash flow situation. Here are some elements taken from its financial statements:
– Stocks of goods: €12
– Customer receivables: €25
– Supplier debts: €10
– Cash: €8
– Net result: €6
– Allocations to depreciation and provisions: €2
Work to do :
1. Calculate the working capital requirement of the business.
2. Determine self-financing capacity.
3. Calculate the company's liquidity indicator.
4. Evaluate the financial situation of the company.
5. Suggest measures to improve the liquidity of the company.
Proposed correction:
1. WCR = (Inventories + Customer receivables) – Supplier debts = (€12 + €000) – €25 = €000
2. CAF = Net income + Depreciation and provision allocations = €6 + €000 = €2
3. Liquidity Indicator = Cash / WCR = €8 / €500 = 27
4. The company's liquidity indicator is less than 1, which means that available cash does not cover the entire working capital requirement. This indicates a strained financial situation that could make it difficult to repay debts in the short term.
5. To improve liquidity, the company could seek to increase its sales to reduce its inventory and increase its accounts receivable. It could also negotiate longer payment terms with its suppliers to reduce its WCR. Finally, an increase in capital or a loan could increase available cash flow.
Summary of Formulas Used:
| Terminology | Formulas |
|---|---|
| Working capital requirement (WCR) | (Inventories + Customer receivables) – Supplier debts |
| Self-financing capacity (CAF) | Net income + Depreciation and provisions |
| Liquidity Indicator | Cash / WCR |
Application: Le Bon Vin Company
States :
The Le Bon Vin company is a small business selling wines and spirits. Here is the company's financial information at the end of the financial year:
– Stocks: €30
– Customer receivables: €20
– Supplier debts: €25
– Tax and social debts: €10
Work to do :
1. Calculate the Operating Working Capital Requirement (BCRE).
2. Calculate the Operating Rolling Resources (ORR).
3. What is the company's Working Capital Requirement (WCR)?
4. Does Le Bon Vin have enough funds to cover its daily operations?
5. What is the impact of a high WCR on the company?
Proposed correction:
1. The Working Capital Requirement (BCRE) is calculated by the formula: Sum of Inventories + Customer Receivables. Here, this gives €30 + €000 = €20.
2. Operating Working Resources (RRE) are calculated by the formula: Supplier debts + Tax and social security debts. Here, this gives €25 + €000 = €10.
3. The Working Capital Requirement (WCR) is calculated by the formula: BCRE – RRE. Here, this gives €50 – €000 = €35.
4. The company's WCR is €15, which means it needs this amount to finance its daily operations. However, we do not have information on the company's current cash flow to know whether this need is covered or not.
5. A high WCR implies that the company has significant financing needs for its operating cycle. This may affect its creditworthiness and ability to pay its debts in the short term.
Summary of Formulas Used:
| Formulas | Designation |
|---|---|
| BFR = BCRE – RRE | Calculation of Working Capital Requirement |
| BCRE = Sum of inventories + Customer receivables | Calculation of Operating Working Capital Requirement |
| RRE = Supplier debts + Tax and social security debts | Calculation of Operating Working Resources |
Application: Truc Corp
States :
Truc Corp is a company that provides IT consultancy services. The following financial data comes from their annual accounts:
– Current assets: €30000
– Current Liabilities: €10000
– Stock: €5000
– Receivables: €20000
– Supplier debts: €15000
– Tax and Social Debts: €5000
The company's accountant, Richard, has just received the accounts for the current year and he must determine the company's working capital requirement.
Work to do :
1. What is the working capital requirement (WCR) formula?
2. Calculate the WCR of Truc Corp.
3. Richard predicts a decrease in WCR for next year. What does this mean for the business?
4. How can the company reduce WCR?
5. What will be the impact on the company's cash flow if it manages to reduce the WCR?
Proposed correction:
1. The formula for Working Capital Requirement (WCR) is: WFR = Current Assets (Stock + Receivables) – Current Liabilities (Supplier Debts + Tax and Social Security Debts).
2. For truc Corp, the BFR is: BFR = (€5000 + €20000) – (€15000 + €5000) = €30000 – €20000 = €10000.
3. If Richard predicts a decrease in WCR for the following year, this means that the company should have better management of its inventories and receivables. This can also mean better negotiation with suppliers to extend payment terms. In short, a drop in working capital is generally good news for the company.
4. To reduce its WCR, the company may seek to reduce its inventories (for example, by improving its inventory management), collect its receivables more quickly or extend its payment terms with its suppliers.
5. If the company manages to reduce its WCR, it will free money from short operational cycles (such as purchasing inventory and collecting receivables) into its cash flow. A reduction in WCR is therefore favorable to cash flow.
Summary of Formulas Used:
| Concept | Formulas |
|---|---|
| Working capital requirement (WCR) | WCR = Current Assets (Stock + Receivables) – Current Liabilities (Suppliers’ Debts + Tax and Social Security Debts) |
Application: TechNov Company
States :
The TechNov company specializes in the distribution of technological products and is encountering several financial difficulties. The managers commissioned a chartered accountant to analyze the company's financial data and look for solutions to improve their working capital requirements.
The data provided is as follows:
– Current assets excluding cash: €200
– Current liabilities excluding financial debts: €150
– Stocks: €50
– Customer receivables: €100
– Supplier debts: €70
– Other non-financial debts: €80
Work to do :
1. What is the company's working capital requirement (WCR)?
2. How can you interpret this BFR?
3. What would be the impacts of an increase in supplier debts on WCR?
4. How can the company reduce its WCR?
5. If the company reduces its inventories by 20%, what will be the impact on working capital?
Proposed correction:
1. The working capital requirement (WCR) is calculated by subtracting the circulating liabilities excluding financial debts from the circulating assets excluding cash. Thus, WCR = Circulating assets excluding cash – Circulating liabilities excluding financial debts, i.e. WCR = €200 – €000 = €150.
2. A WCR of €50 means that the company uses €000 of its stable resources (equity and medium/long-term financial debt) to finance its operating cycles. This is a major financial issue because a WCR that is too high can cause liquidity problems.
3. An increase in trade payables, which is a component of current liabilities, would lead to a decrease in WCR, since the latter is calculated by subtracting current liabilities from current assets.
4. The company can reduce its working capital by reducing its current assets and/or increasing its current liabilities. Several actions can be considered, such as optimizing inventory management, accelerating customer collections or renegotiating supplier payment deadlines.
5. If the company reduces its inventories by 20%, its non-cash circulating assets would therefore decrease by 20% x €50 = €000, dropping to €10. Thus, the new WCR would be €000 – €190 = €000.
Summary of Formulas Used:
– WCR = Circulating assets excluding cash – Circulating liabilities excluding financial debts
– New WCR following a reduction in inventories = (Current assets excluding cash – (20% x inventories)) – Circulating liabilities excluding financial debts
| Formulas | Description |
|---|---|
| WCR = Current assets excluding cash – Current liabilities excluding financial debts | Formula for calculating Working Capital Requirement (WCR) |
| New WCR after inventory reduction = (Current assets excluding cash – (20% x inventories)) – Current liabilities excluding financial debts | Formula for calculating the new WCR after reducing stocks |
Application: VoyageLo travel agency
States :
The travel agency VoyageLo, which began its activity a year ago, has been experiencing cash flow difficulties for several months. After analysis, the manager identified that his working capital requirement (WCR) is too high.
FINANCIAL INFORMATION:
– Customer receivables: €45
– Stocks: €20
– Other debtors: €15
– Supplier debts: €25
– Other creditors: €10
Work to do :
1. What is working capital requirement (WCR)?
2. Calculate the WCR of the VoyageLo travel agency.
3. What consequences can a WCR that is too high have?
4. Propose an action to reduce the WCR.
5. What would be the effect of implementing this action on the company's WCR?
Proposed correction:
1. The working capital requirement (WCR) is a financial measure which makes it possible to evaluate the difference between the financial resources necessary to finance the operational activity of the company and those which are financed by short-term creditors.
2. The WCR of the VoyageLo travel agency is calculated as follows: Current assets – Current liabilities, i.e.: (45 + 000 + 20) € – (000 + 15) € = 000 €.
3. A WCR that is too high can have several consequences. It causes a high financing requirement, which can lead to an increase in the company's debts, cash flow difficulties, a reduction in the company's investment capacity and potentially its bankruptcy in the event of cash flow difficulties. chronicles.
4. A possible action to reduce the WCR could be to negotiate longer payment terms with suppliers. This would increase current liabilities and therefore reduce WCR.
5. If this action were implemented, it would increase VoyageLo's current liabilities. Consequently, its WCR would decrease, meaning the company would require less short-term financing for its operational activity, thereby improving its cash flow.
Summary of Formulas Used:
| Packages | Explanation |
|---|---|
| WCR = Current assets – Current liabilities | Working capital requirement (WCR) is the difference between current assets (inventories, trade receivables and other debtors) and current liabilities (suppliers' debt and other creditors). |
Application: The Corner Bakery
States :
La Boulangerie du Coin is a small business located in the heart of the city, specializing in the sale of bread, pastries and regional products. The data available for the last financial year is as follows:
– Stocks: €12
– Customer receivables: €8
– Supplier debts: €15
– Tax and social debts: €4
Work to do :
1. Calculate the bakery's short-term debts.
2. Calculate the bakery's current assets.
3. Calculate the working capital requirement (WCR) of the bakery.
4. What does a positive WCR mean?
5. What are the consequences of a WCR that is too high for the company?
Proposed correction:
1. Short-term debts correspond to the total of supplier debts and tax and social security debts. In our case, this gives: €15 (supplier debts) + €000 (tax and social security debts) = €4
2. Current assets are total inventory and trade receivables. In our case, this gives: €12 (Inventories) + €000 (Receivables) = €8
3. Working capital requirement (WCR) corresponds to the difference between current assets and short-term debts. In our case, this gives: €20 (Current assets) – €000 (Short-term debts) = €19
4. A positive WCR means that the company needs to finance part of its short-term assets with long-term resources. This is a typical situation for many businesses, especially those that have large inventories or provide credit to their customers.
5. A WCR that is too high can create cash flow difficulties for the company. In effect, this means that the company has a lot of capital tied up in its inventory and trade receivables, which can create tension if the company needs financing for its day-to-day operations.
Summary of Formulas Used:
| Formula Name | Formulas |
|---|---|
| Short-term debts | Supplier debts + Tax and social security debts |
| Current assets | Inventories + Customer receivables |
| Working capital requirements (WCR) | Current assets – Current debts |
Application: Omega Company
States :
The Omega company is an industrial company that manufactures high-tech electronic products. It is growing and managers want to analyze the company's working capital requirements in order to optimize cash flow management.
Here is the information we have:
– Stocks of finished products: €10
– Customer receivables: €8
– Other current assets: €2
– Supplier debts: €7
– Other current liabilities: €3
Work to do :
1. Calculate the current assets of Omega Company.
2. Calculate the current liabilities of Omega Company.
3. Calculate the working capital requirement of Omega Company.
4. Interpret the result obtained.
5. Explain the importance of working capital in managing a business.
Proposed correction:
1. Omega's current assets are calculated by adding inventories, trade receivables, and other current assets. So, Current assets = €10 + €000 + €8 = €000.
2. Omega's current liabilities are calculated by adding trade payables and other current liabilities. So, Current liabilities = €7 + €000 = €3.
3. Omega's working capital requirement (WCR) is calculated by subtracting current liabilities from current assets. So, WCR = €20 – €000 = €10.
4. The result obtained shows that the Omega company has a working capital requirement of €10. This means that the company must have a sum of money of €000 at its disposal to meet its current operational needs.
5. The need for working capital is essential in the management of a business because it makes possible the financing of the operating cycle. It allows the company to maintain its daily operations by covering the gap between collections (sales) and disbursements (purchases, salaries, other expenses). A positive WCR indicates that the company has enough liquidity to cover its short-term expenses, while a negative WCR could indicate difficulty covering these expenses.
Summary of Formulas Used:
- Working capital requirement (WCR) = Current assets – Current liabilities
- Current assets = Inventories + Trade receivables + Other current assets
- Current liabilities = Supplier debts + Other current liabilities
Application: FashionStore Company
States :
The FashionStore Company, an clothing retailer, is preparing its financial management forecast for the coming year. The information collected includes forecasted revenue, forecasted sales, forecasted cash operating expenses, and other forecasted expenses. You are FashionStore's financial consultant responsible for analyzing the data provided and answering the following questions.
– Expected turnover: €400
– Expected cost of sales: €160
– Planned cash operating expenses: €100
– Other planned expenses: €30
Work to do :
1. Calculate the working capital requirement (WCR) of the FashionStore company.
2. What would be the situation if the expected cost of sales increased by 10%?
3. What would be the impact on working capital requirements if planned cash operating expenses increased by 15%?
4. What would be the impact on working capital requirements if forecast turnover decreased by 20%?
5. Assuming the company has €50 of equity, does FashionStore need additional financing?
Proposed correction:
1. Form to calculate WCR: WCR = Cost of sales + Cash operating expenses + Other expenses
So, WCR of FashionStore = €160 + €000 + €100 = €000
2. If cost of sales increases by 10%, then cost of sales = €160 + (000% of €10) = €160
So the new WCR would be €176 + €000 + €100 = €000
3. If cash operating expenses increase by 15%, then cash operating expenses = €100 + (000% of €15) = €100
So the new WCR would be €160 + €000 + €115 = €000
4. The working capital requirement is not affected by a drop in turnover, because turnover is not a component of the WCR calculation. The WCR therefore remains at €290.
5. If the company has €50 of equity, this means that it has €000 to cover its working capital of €50. There is therefore a deficit of €000 – €290 = €000. So, yes, FashionStore needs additional funding.
Summary of Formulas Used:
| Formulas | Description |
|---|---|
| WCR = Cost of sales + Cash operating expenses + Other expenses | Basic formula for calculating working capital requirement (WCR) |
| CAS = CAS + (Percentage increase ÷ 100 x CAS) | Formula to calculate the increase in cash operating expense (CAS) |
| CDV = CDV + (Percentage increase ÷ 100 x CDV) | Formula for Calculating Cost of Sales Increment (COGS) |
Application: Gourmet Ice Cream
States :
Les Glaces Gourmandes is a small business specializing in the manufacture and sale of artisanal ice creams. At the end of the financial year, you find the following information in the operating accounts:
– Stocks: €85
– Customer receivables: €42
– Availability: €15
– Supplier debts: €50
– Other short-term debts: €25
Work to do :
1. Calculate current assets.
2. Calculate current liabilities.
3. Calculate the working capital requirement (WCR).
4. Interpret the BFR obtained.
5. What is the impact of an increase in inventories on WCR?
Proposed correction:
1. Current assets are the sum of inventories, trade receivables and cash on hand. Therefore, Current assets = Inventories + Customer receivables + Cash = €85 + €000 + €42 = €000.
2. Current liabilities consist of supplier debts and other short-term debts. We therefore calculate it as follows: Current liabilities = Supplier debts + Other short-term debts = €50 + €000 = €25.
3. Working capital requirement (WCR) corresponds to the difference between current assets and current liabilities. So, WCR = Current assets – Current liabilities = €142 – €000 = €75.
4. A WCR of €67 means that the company needs €000 in financial resources to cover its short-term cash flow needs. This amount can be financed by stable resources or by short-term debt.
5. An increase in inventories, while remaining permanent, leads to an increase in WCR since inventories are part of current assets. This can represent a constraint for the company because it requires additional cash to finance these stocks.
Summary of Formulas Used:
| Formulas | Description |
|---|---|
| WCR = Current assets – Current liabilities | Calculation of Working Capital Requirement (WCR) |
| Current assets = Inventories + Customer receivables + Cash | Calculation of current assets |
| Current liabilities = Supplier debts + Other short-term debts | Calculation of current liabilities |
Application: TechnoPlus Company
States :
TechnoPlus is a company specializing in the retail trade of technological equipment. As of December 31, 2021, the following information is available:
– Stock of goods: €150
– Customer receivables at the end of 2021: €100
– Supplier debts at the end of 2021: €80
– Tax and social debts at the end of 2021: €20
In 2022, TechnoPlus expects a 10% increase in its turnover, which would imply an increase in its customer receivables and its merchandise inventory.
Work to do :
1- Calculate the Working Capital Requirement (WCR) of TechnoPlus for the year 2021.
2- Estimate the company's WCR for the year 2022.
3- What could be the impacts of the increase in working capital for the company?
4- What actions could TechnoPlus take to minimize the increase in its WCR?
5- How could the company finance its working capital needs?
Proposed correction:
1- The WCR is calculated by subtracting operating debts from operating receivables, i.e., for TechnoPlus in 2021: (€150 of stock + €000 of customer receivables) – (€100 of supplier debts + 000 80 € of tax and social debts) = 000 €.
2- Assuming that the increase in turnover results in a 10% increase in operating asset items (stock and customer receivables), the WCR for 2022 would be: [(€150 x 000, 1,1) + (€100 x 000)] – [(€1,1 + €80) x 000] = €20 + €000 – €1,1 = €165.
3- The increase in the company's WCR means that it will have to allocate more financial resources to finance its current operations. This may impact its cash flow and its ability to finance other activities, or to meet unforeseen expenses.
4- To minimize the increase in its WCR, TechnoPlus could seek to improve its management of inventory and customer receivables, for example by implementing a faster inventory rotation policy, or by seeking to reduce payment deadlines for his clients.
5- The working capital requirement can be financed by different sources, such as the company's own funds, or by external sources, such as borrowing.
Summary of Formulas Used:
| Concept | Formulas |
|---|---|
| BFR | (Stock + Customer receivables) – (Supplier debts + Tax and social security debts) |
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