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.
In this section:
- Application: TechBiz
- Application: DesignTech
- Application: AT Construction
- Application: BelleVie Company
- Application: Fitness Plus
- Application: Fashion Elegance store
- Application: Alpha Enterprise
- Application: SuperCoop
- Application: Delice Pastry
- Application: TechnoFutur Company
- Application: South Seas Company
Application: TechBiz
States :
TechBiz, a company specializing in the sale of technological products, is seeking to assess its financial performance at the end of 2020. Here are some data from its balance sheet:
– Equity: €50
– Medium and Long Term Financial Debts (MLT): €30
– Fixed Assets: €60
– Stocks: €10
– Customer receivables: €15
– Supplier debts: €17
Work to do :
1. Calculate the company's Net Working Capital, Net Cash Flow and Working Capital Requirement.
2. Establish the functional balance sheet of the company.
3. What is the meaning of each calculated indicator?
4. Interpret the results obtained.
5. What can the company do to improve its financial situation?
Proposed correction:
1.
– FRNG = Equity + Financial debts at MLT = €50 + €000 = €30
– TN = Fixed Assets + WCR = €60 + (Stocks + Customer Receivables – Supplier Debts) = €000 + (€60 + €000 – €10) = €000
– BFR = (Stocks + Customer Receivables) – Supplier Debts = (€10 + €000) – €15 = €000
2. The functional balance sheet classifies assets between fixed assets and current assets and liabilities between stable resources and current liabilities. Therefore:
– Assets = Fixed Assets + Current Assets (Stocks + Customer Receivables) = €60 + €000 = €25
– Liabilities = Equity + MLT Debts + Trade payables = €50 + €000 + €30 = €000
3.
– FRNG indicates the stable resources available to the company to finance its activity.
– TN represents the amount available to the company to finance its current operations.
– BFR reflects the resources needed to finance the operating cycle and cover cash flow gaps between receipts and disbursements.
4. The company has a FRNG of €80, which means that it has stable resources to finance its activity. However, its WCR is €000, which may indicate a certain imbalance between its disbursements and receipts.
5. To improve its financial situation, the company can implement various strategies such as reducing its stocks, recovering its customer receivables more quickly or negotiating longer payment terms with its suppliers.
Summary of Formulas Used:
| Function | Formulas |
|---|---|
| Global Net Working Capital (FRNG) | Equity + Medium and Long Term Financial Debts (MLT) |
| Total Net (TN) | Fixed Assets + WCR |
| Working capital requirement (WCR) | (Inventories + Customer receivables) – Supplier debts |
| Functional assessment | It is a summary document which groups together, classifies and reprocesses the information on the assets and liabilities of the balance sheet according to an economic and financial logic. |
Application: DesignTech
States :
DesignTech is a company specializing in the design of technological products. At the end of the 2021 financial year, the company provides the following financial data in euros:
– Stable resources: €250
– Stable jobs: €150
– Realizable and available values: €100
– Short-term debts: €50
– Operating jobs: €75
– Operating resources: €25
Work to do :
1) Calculate DesignTech's net working capital (NWC).
2) Calculate DesignTech's net cash flow (NCF).
3) Calculate DesignTech’s working capital requirement (WCR).
4) How can you interpret the results obtained?
5) What are the strategies that the company can adopt to improve its financial situation in the short term?
Proposed correction:
1) DesignTech's Net Working Capital (NWC) is calculated as follows:
FRNG = Stable resources – Stable jobs = €250 – €000 = €150
2) DesignTech's Net Cash (NC) is calculated as follows:
TN = Realizable and available values – Short-term debts = €100 – €000 = €50
3) DesignTech’s Working Capital Requirement (WCR) is calculated as follows:
BFR = Operating jobs – Operating resources = €75 – €000 = €25
4) In the case of DesignTech, the FRNG (€100) is positive, which means that the company has more stable resources than necessary to finance its stable jobs. It therefore has funds available to finance its cyclical jobs. As for the TN (€000), it is also positive. This indicates that the company is able to cover its short-term debts with its short-term assets. Finally, the WCR (€50) is covered by the TN, which means that the company has a safety margin in the event of an unexpected increase in the WCR.
5) To improve its financial situation in the short term, DesignTech could, for example, seek to reduce its WCR by optimizing the management of its stocks or by improving the recovery of its receivables.
Application: AT Construction
States :
AT Construction, a company specializing in the construction of residential buildings, has closed its financial year. The financial director, Mr. Smith, provides you with the following information on the company's balance sheet:
* Fixed assets: €100
* Current assets (stocks + customer receivables): €40
* Equity: €50
* Long-term debts: €60
* Short-term debts: €30
Work to do :
1. Calculate the Net Working Capital (NWC).
2. Calculate the Working Capital Requirement (WCR).
3. Calculate Net Cash (TN).
4. Interpret the results obtained.
5. Suggest improvement actions to the AT Construction company.
Proposed correction:
1. Net Working Capital (NWC) is calculated using the following formula: NWC = Equity + Long-term debt – Fixed assets. Substituting the values, we obtain: NWC = €50 + €000 – €60 = €000.
2. The Working Capital Requirement (WCR) is calculated as follows: WCR = Current assets – Short-term liabilities. Substituting the values, we obtain: WCR = €40 – €000 = €30.
3. Net Cash (TN) is obtained with the following formula: TN = FRNG – BFR. Substituting the values, we obtain: TN = €10 – €000 = €10.
4. The results obtained show that the company AT Construction is in a balanced Net Cash Flow situation, which implies that the company covers its needs exactly with its resources. However, this can be risky if unforeseen events occur.
5. To improve its financial situation, AT Construction could seek to increase its FRNG by increasing its equity or by reducing its investments in fixed assets. It could also seek to reduce its WCR by reducing its current assets (for example by reducing its inventories) or by increasing its short-term debts.
Summary of Formulas Used:
| Concept | Formulas |
|---|---|
| FRNG (Global Net Working Capital) | FRNG = Equity + Long-term debt – Fixed assets |
| BFR (Working Capital Requirement) | BFR = Current assets – Short-term debts |
| TN (Net Cash) | TN = FRNG – BFR |
Application: BelleVie Company
States :
BelleVie is a young company specializing in the sale of beauty products. In order to understand the financial situation of the company, the financial director produced a functional balance sheet. Here are the main items on the balance sheet:
– Stable resources: €150
– Stable jobs: €105
– Current operating assets: €50
– Current operating liabilities: €25
Work to do :
1. Calculate the FRNG of the BelleVie company.
2. Calculate the BFRE of the BelleVie company.
3. Calculate the TN of the BelleVie company.
4. Analyze and interpret the results obtained.
5. How important are these results for the financial management of the company?
Proposed correction:
1. FRNG = Stable resources – Stable jobs = €150 – €000 = €105.
The FRNG of the BelleVie company is therefore €45.
2. BFRE = Current operating assets – Current operating liabilities = €50 – €000 = €25.
The BFRE of the BelleVie company is therefore €25.
3. TN = FRNG – BFRE = €45 – €000 = €25.
The net cash flow of the BelleVie company is therefore €20.
4. The positive FRNG of €45 means that BelleVie has more stable resources than stable jobs, which is an indication of the company's solvency and stability. The BFRE of €000 shows that the company needs this amount to cover its operating cycle. The positive TN indicates a good level of cash to meet short-term commitments.
5. These results are important for financial management because they allow us to understand the situation of the company, its working capital requirements and its ability to meet its commitments. They are a valuable aid in developing financial plans and decision-making.
Summary of Formulas Used:
| Formulas | Explanation |
|---|---|
| FRNG (Global Net Working Capital) = Stable resources – Stable jobs | The FRNG measures the surplus of stable resources over stable jobs. |
| BFRE (Operating Working Capital Requirement) = Current operating assets – Current operating liabilities | The BFRE is the part of the operating cycle that is financed by stable resources. |
| TN (Net Cash) = FRNG – BFRE | The TN measures the excess cash available after covering the working capital requirement. |
Application: Fitness Plus
States :
Fitness Plus, a company specializing in fitness and bodybuilding equipment, has closed its fiscal year. Here is the information taken from its balance sheet:
– Fixed assets (Net): €500
– Equity: €350
– Current assets: €230
– Current liabilities: €150
Work to do :
1. Calculate the company's Net Working Capital (NWC).
2. Determine the Working Capital Requirement (WCR).
3. Estimate Net Cash Flow (NCF).
4. Interpret the FRNG, BFR and TN.
5. Propose actions to improve the financial situation.
Proposed correction:
1. FRNG = Fixed assets – Equity = €500 – €000 = €350.
2. BFR = Current assets – Current liabilities = €230 – €000 = €150.
3. TN = FRNG – BFR = €150 – €000 = €80.
4. The FRNG is positive, which means that the company has sufficient stable resources to finance fixed assets. The positive WCR indicates that the company has resources tied up in the operating cycle. The net cash is also positive, which means that the company has financial provisions that allow it to meet unforeseen expenses.
5. To improve the financial situation, the company could seek to reduce the WCR by accelerating its receipts and delaying its disbursements. In addition, the company could seek to increase its equity in order to improve the FRNG.
Summary of Formulas Used:
| Formulas | Explanation |
|---|---|
| FRNG = Fixed Assets – Equity | The excess of Stable Resources over Fixed Assets called Global Net Working Capital (GNWC) |
| BFR = Current Assets – Current Liabilities | The Working Capital Requirement (WCR) represents the sums necessary to finance the operating cycle of the company. |
| TN = FRNG – BFR | Net Cash (NC) remains after financing current assets through debts at short term. |
Application: Fashion Elegance store
States :
The chic fashion store "Fashion Elegance", specializing in the sale of high-end clothing, has submitted its balance sheet for the year 2021. You are responsible for analyzing the financial situation of the company in order to help management make strategic decisions.
– Fixed Assets (AI): €1
– Current assets (CA): €1
– Medium and long-term debts (MLTD): €900
– Short-term debts (STD): €900
– Availability: €200
Work to do :
1. Calculate the Net Working Capital (NWC).
2. Determine the Working Capital Requirement (WCR).
3. What is the company's Net Cash Flow (NCF)?
4. How is the company doing financially?
5. What advice would you give to management to improve the company's financial situation?
Proposed correction:
1. The Net Working Capital (NRCC) is calculated by subtracting the Medium and Long Term Debts (MLTD) from the Fixed Assets (FA): NWC = FA – MLTD = €1 – €500 = €000.
2. The Working Capital Requirement (WCR) is obtained by subtracting the Short-Term Debts (STD) from the Current Assets (CA): WCR = CA – STD = €1 – €200 = €000.
3. Net Cash (NC) is the difference between the FRNG and the WCR: NC = FRNG – WCR = €600 – €000 = €300.
4. From a financial point of view, the company "Fashion Elegance" is doing relatively well. It has a positive net cash position (€300), which means that it has enough liquidity to cover its working capital requirement. However, management must continue to closely monitor the cash level to avoid a situation of financial imbalance.
5. To improve the financial position of the company, managers could consider reducing short-term debts. This would reduce the WCR and therefore increase the TN. They can also seek to increase current assets (for example by increasing sales or improving inventory management) to increase the FRNG.
Summary of Formulas Used:
| Formulas | Description |
|---|---|
| FRNG = AI – DMLT | Global Net Working Capital |
| BFR = AC – DCT | Need in funds |
| TN = FRNG – BFR | Net Cash |
Application: Alpha Enterprise
States :
The Alpha company has entrusted you with the analysis of its functional balance sheet for the year 2020. Here are the main data:
– Equity: €150
– Financial Debts: €30
– Active Treasury: €60
– Passive Cash Flow: €10
– Current assets excluding cash: €100
– Current Liabilities excluding Cash: €70
Work to do :
1. Calculate the Net Working Capital (NWC).
2. Calculate Net Cash (TN).
3. Calculate the Working Capital Requirement (WCR).
4. What is the financial situation of the company?
5. Do you have any recommendations for the company?
Proposed correction:
1. Net Working Capital (NWC) is calculated by adding equity to financial liabilities. In our case, this gives: €150 + €000 = €30. Alpha therefore has a NWC of €000.
2. Net Cash (NC) is calculated by subtracting passive cash from active cash. Thus, NC = €60 – €000 = €10. The Net Cash of Alpha Company is therefore €000.
3. Working Capital Requirement (WCR) is the non-cash current assets minus the non-cash current liabilities. In our case, this gives: €100 – €000 = €70. The WCR of Alpha company is €000.
4. The financial situation of the company is considered healthy when the FRNG is higher than the WCR. Here, the FRNG (€180) is much higher than the WCR (€000). This means that the company has sufficient resources to meet its short-term needs. The positive net cash flow (€30) also demonstrates the company's good capacity to meet its short-term financial commitments.
5. The company is in good financial shape. However, it may seek to reduce its WCR to free up more cash. Furthermore, a more in-depth analysis of the asset and liability components may reveal opportunities for optimization.
Summary of Formulas Used:
| Financial concept | Formulas |
|---|---|
| Global Net Working Capital (FRNG) | Equity + Financial Debt = €150 + €000 = €30 |
| Net Cash (TN) | Active Cash Flow – Passive Cash Flow = €60 – €000 = €10 |
| Working Capital Requirement (WCR) | Current Non-Cash Assets – Current Non-Cash Liabilities = €100 – €000 = €70 |
Application: SuperCoop
States :
SuperCoop is a local sustainable supermarket that prides itself on supporting local producers and offering eco-friendly products to its customers. At the end of the fiscal year, SuperCoop's CFO analyzes its financial statement and seeks to understand it further. The following data was extracted from the balance sheet:
Fixed assets: €1
Current assets (excluding cash): €400
Long-term debts: €800
Short term debts: €100
Cash-Assets: €50
Work to do :
1. Calculate the Global Net Working Capital (GNWC) of SuperCoop.
2. Calculate the Working Capital Requirement (WCR) of SuperCoop.
3. Calculate the Net Cash Flow (NCF) of SuperCoop.
4. What interpretation can you make of the results obtained for the FRNG, the BFR and the TN?
5. What recommendations would you make to the CFO based on this analysis?
Proposed correction:
1. The Net Working Capital (NWC) is calculated as follows: NWC = Fixed assets – Long-term debts. Therefore, SuperCoop’s NWC = €1 – €200 = €000.
2. The Working Capital Requirement (WCR) is calculated as follows: WCR = Current assets (excluding cash) – Short-term debts. Therefore, SuperCoop’s WCR = €400 – €000 = €100.
3. Net Cash (NC) is calculated as follows: NC = FRNG – BFR. Therefore, NC of SuperCoop = €400 – €000 = €300.
4. A FRNG of €400 indicates that SuperCoop has sufficient funds to cover its long-term expenses. A WCR of €000 means that the company requires €300 to finance its current non-cash activity. Finally, a TN of €000 reveals that the company has positive cash flow that can be used for its daily expenses, and possibly for future investments.
5. In view of these results, the CFO could consider using part of the Net Cash to reduce its WCR, if possible. Furthermore, he could also consider investing part of the Net Cash in long-term projects, to improve the future profitability of SuperCoop.
Summary of Formulas Used:
| Formulas | Explanation |
|---|---|
| FRNG = Fixed assets – Long term debts | Calculation of overall net working capital |
| BFR = Current assets (excluding cash) – Short-term debts | Calculation of working capital requirement |
| TN = FRNG – BFR | Calculation of net cash flow |
Application: Delice Pastry
States :
Pâtisserie Delice has been keeping its accounting balance sheet for several years. The owner, Mr. Delice, has paid particular attention to the management of its BFR (Working Capital Requirement) and its FRNG (Net Working Capital), as well as to the study of its TN (Net Cash Flow), with a view to improving its financial health. The following data comes from the accounting exercise of the previous year:
– Fixed assets: €37
– Current assets: €15
– Long and medium term debts: €28
– Short-term debts: €17
– Bank account (cash): €7
Some values are missing and Mr. Delice would need to calculate them.
Work to do :
Q1. Calculate the Net Working Capital (NWC) of Pâtisserie Delice?
Q2. Determine the company’s Working Capital Requirement (WCR)?
Q3. Evaluate the company’s Net Cash (NC)?
Q4. Analyze financial health by interpreting these results?
Q5. What recommendations can be made based on this analysis?
Proposed correction:
R1. The Net Working Capital (NWC) is calculated using the formula: Fixed assets – Long and medium-term debts. Here, NWC = €37 – €000 = €28.
R2. The Working Capital Requirement (WCR) is calculated using the formula: Current Assets – Short-Term Debts. In this case, WCR = €15 – €000 = -€17.
R3. Net Cash (NC) is the difference between the FRNG and the WCR. Thus, NC = FRNG – WCR = €9 – (- €000) = €2.
R4. The financial situation is healthy. Indeed, the company has a positive FRNG, showing that fixed assets are financed by stable resources. The Working Capital Requirement is negative, indicating that short-term resources are sufficient to finance the company's current needs. Net cash is positive, which means that the company has liquidity at its disposal.
A5. Mr. Delice may consider expanding his business or investing in new equipment to improve the production and quality of his pastries. However, he must be careful not to jeopardize his healthy financial situation by taking on excessive debt.
Summary of Formulas Used:
| Notion | Formulas |
|---|---|
| Net Working Capital | FRNG = Fixed assets – Long and medium term debts |
| Working Capital Requirement | BFR = Current Assets – Short-term Debts |
| Net cash | TN = FRNG – BFR |
Application: TechnoFutur Company
States :
TechnoFutur is a high-tech company specializing in the sale of electronic products. In order to assess its financial situation, it has drawn up its functional balance sheet. The data concerning this company for the year 2019 are as follows:
– Net fixed assets: €50,000
– Current assets (excluding cash): €30,000
– Cash-Assets: €6,500
– Stable liabilities: €65,000
– Current liabilities (excluding cash): €13,500
– Cash-Liabilities: €8,000
Work to do :
1. Determine the company's Total Net Working Capital (TNWC) for 2019.
2. Calculate the company's Net Cash (NC) for 2019.
3. Establish the amount of Working Capital Requirement (WCR) for 2019.
4. What is the company's ability to cover its short-term debts?
5. Based on the previous results, how can you interpret the financial situation of the company?
Proposed correction:
1. The Net Working Capital (NWC) is calculated by the following formula: NWC = Fixed liabilities – Net fixed assets. In this case, NWC = €65,000 – €50,000 = €15,000
2. Net Cash (NC) is obtained by the difference between Cash-Assets and Cash-Liabilities. Therefore, NC = Cash-Assets – Cash-Liabilities = €6,500 – €8,000 = -€1,500
3. Working Capital Requirement (WCR) is calculated by subtracting Current Assets (excluding cash) from Current Liabilities (excluding cash). Thus, WCR = Current Assets – Current Liabilities = €30,000 – €13,500 = €16,500
4. The company's ability to cover its short-term debts is given by the ratio (TN/BFR). In this specific case, the ratio = -1,500 €/16,500 € or approximately -0,09.
5. The result of the calculation of the ratio (TN/BFR) indicates that the company does not have the necessary liquidity to cover its short-term debts. It therefore has a need for financing to cover this deficit. We can therefore say that despite a positive FRNG, the financial situation of the company is worrying. A negative cash flow indicates the presence of liquidity difficulties. In addition, a high BFR suggests that the company has large investments underway in the operating cycle.
Summary of Formulas Used:
| Term | Formal Representation |
|---|---|
| FRNG | Stable liabilities – Net fixed assets |
| TN | Cash-Assets – Cash-Liabilities |
| BFR | Current assets (non-cash) – Current liabilities (non-cash) |
| Ratio (TN/BFR) | Cash-Assets / Working capital requirement |
Application: South Seas Company
States :
The South Seas Company is a shipping company that operates in the Pacific Ocean. The manager of the company has called you for a financial consultation. He is having trouble understanding some aspects of its operating balance sheet. Here is the information he has provided you:
Fixed assets: €1
Stocks: €200
Receivables: €300
Cash assets: €50
Total Assets: €2
Fixed capital: €500
Financial debts: €1
Operating debts: €100
Cash-liabilities: €50
Total Liabilities: €1
Work to do :
1. Calculate the Total Net Working Capital (FRNG).
2. Calculate the Working Capital Requirement (WCR).
3. Calculate Net Cash (TN).
4. Interpret the results obtained in terms of solvency and liquidity.
5. Suggest improvement actions based on your results and interpretations.
Proposed correction:
1. Net Working Capital (NWC) is calculated by subtracting fixed capital from total fixed assets and financial liabilities. NWC = (Fixed assets + Financial liabilities) – Fixed capital = (€1 + €500) – €000 = €1.
2. Working Capital Requirement (WCR) is calculated by adding together inventories and receivables, then subtracting operating liabilities. WCR = (Inventories + Receivables) – Operating liabilities = (€200 + €000) – €300 = €000.
3. Net Cash (NC) is obtained by subtracting the WCR from the FRNG. NC = FRNG – WCR = €2 – €000 = €000.
4. Positive FRNG and TN indicate that the company is solvent (it can meet its long-term financial obligations), and it has good liquidity (it has enough funds to cover its short-term expenses). However, a high WCR could indicate excess inventory or inefficiency in collecting receivables.
5. The company could consider reducing its WCR by improving inventory management and payment terms to suppliers, or by seeking to accelerate the recovery of receivables. This would further improve liquidity and solvency.
Summary of Formulas Used:
| Formulas | Explanation |
|---|---|
| FRNG = (Fixed assets + Financial debts) – Fixed capital | Net Working Capital (NWC) measures the company's ability to cover its long-term financial needs. |
| BFR = (Stocks + Receivables) – Operating debts | The Working Capital Requirement (WCR) measures the company's ability to finance its current activities. |
| TN = FRNG – BFR | Net Cash Flow (NCF) measures the company's liquidity (its ability to cover its short-term expenses). |