Welcome to this article whose sole purpose is to help you progress with corrected exercises on working capital requirements 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 working capital requirements on this page mainly concern the calculation of overall net working capital and net cash flow.
In this section:
- Application: SARL The Coin Store
- Application: Industrial Supplies Company
- Application: Financial Analysis of ABC Ltd
- Application: The EcoGreen Company
- Application: Les Saveurs du Terroir company
- Application: Corner Supermarket
- Application: HyperTech Industrial Company
- Application: Gourmet Delights Company
- Application: Business Innovative Gadgets
- Application: The Gastronomy store
- Application: Maison Dupont Company
Application: SARL The Coin Store
States :
SARL Le magazine du Coin is a commercial enterprise located in a small town. It specializes in the sale of food and household products. The company's managers now want to carry out a financial analysis of their operations in order to improve the company's performance. At the end of the financial year, the company's balance sheet looks like this:
– Fixed assets: €75
– Stock: €40
– Miscellaneous receivables: €15
– Banks (cash): €20
– Total Assets: €150
On the assets side of the Balance Sheet:
– Equity: €80
– Loans and financial debts: €50
– Commercial debts: €10
– Other debts: €10
– Total Liabilities: €150
Work to do :
1. Calculate the company's Total Net Working Capital (FRNG).
2. What is the company's Working Capital Requirement (WCR)?
3. What is the net cash flow (TN) like?
4. Calculate the financial independence and debt ratios.
5. Comment on the results obtained.
Proposed correction:
1. The FRNG is calculated by subtracting fixed assets from stable resources (equity + borrowings and financial debts).
FRNG = (€80 + €000) – €50
FRNG = €55
2. The WCR is calculated by subtracting operating debts from current assets.
WCR = (€40 + €000) – (€15 + €000)
WCR = €35
3. Net cash flow is the difference between the FRNG and the WCR.
TN = FRNG – BFR
TN = €55 – €000
TN = €20
4. Financial independence ratio = Equity / Total Liabilities x 100
Ratio = €80 / €000 x 150 = 000%
Debt ratio = Borrowings and financial debts / Total Liabilities x 100
Ratio = €50 / €000 x 150 = 000%
5. Comments on these results could be as follows: SARL Le boutique du Coin has a positive overall net working capital, which means that the company has enough resources to cover its long-term investments. The working capital requirement is relatively high, which means that the company has funds tied up in its operating cycle. This could be due to a longer inventory turnaround time or longer customer payment times. Finally, with a financial independence ratio of 53,33%, which means that more than 50% of the company's assets are financed by equity, and a debt ratio of 33,33%, the company has a healthy financial structure.
Summary of Formulas Used:
| Formulas | Description |
|---|---|
| FRNG = (Equity + Borrowings and financial debts) – Fixed assets | Global Net Working Capital |
| WCR = (Stock + Miscellaneous receivables) – Commercial debts | Need in funds |
| TN = FRNG – BFR | Net Cash |
| Financial independence ratio = Equity / Total Liabilities x 100 | Financial independence ratio |
| Debt ratio = Borrowings and financial debts / Total Liabilities x 100 | Rate of endettement |
Application: Industrial Supplies Company
Summary of Formulas Used:
| concepts | Packages |
|---|---|
| Total net working capital (FRNG) | FRNG = Permanent capital – Fixed assets |
| Working capital requirement (WCR) | WCR = Current assets (excluding cash) – Current liabilities (excluding cash) |
| Net Cash (TN) | TN = Cash Assets – Cash Liabilities |
| Financial independence report (RIF) | RIF = Permanent capital / Total assets |
| General Liquidity Report (RLG) | RLG = Current assets / Current liabilities |
States :
Société Fournitures Industrielles (SFI) specializes in the sale of materials and equipment for industry. She sent you the following elements taken from her functional assessment:
– Permanent capital: €900
– Fixed assets: €500
– Current assets excluding cash: €550
– Current non-cash liabilities: €150
– Cash Assets: €100
– Cash Liabilities: €30
Work to do :
1. Calculate the company's Total Net Working Capital (FRNG).
2. Determine SFI’s Working Capital Requirement (WCR).
3. Establish the company's Net Cash Flow (NT).
4. Calculate and interpret SFI's Financial Independence Report (FIR).
5. Produce and interpret the company's General Liquidity Report (GLR).
Proposed correction:
1. Global Net Working Capital (FRNG):
FRNG = Permanent capital – Fixed assets = €900 – €000 = €500
2. Working Capital Requirement (WCR):
WCR = Current assets (excluding cash) – Current liabilities (excluding cash) = €550 – €000 = €150
3. Net Cash (TN):
TN = Cash Assets – Cash Liabilities = €100 – €000 = €30
4. Financial Independence Report (RIF):
RIF = Permanent capital ÷ Total assets = €900 ÷ (€000 + €500 + €000) = €550 ÷ €000 = 100
This means that 78% of the company's resources are used to finance its fixed assets and its WCR. The higher this ratio, the stronger the financial structure of the company.
5. General liquidity ratio (RLG):
RLG = Current assets ÷ Current liabilities = €550 ÷ €000 = 150
This indicates that the company has 3,67 times more current assets to convert into cash than current liabilities to pay. A ratio of more than 1 is generally considered healthy.
Application: Financial Analysis of ABC Ltd
States :
ABC Ltd is a company specializing in the sale of electronic products. At the end of the financial year, the company presents the following balance sheet:
– Fixed assets: €120
– Current assets: €300
– Long-term debts: €80
– Short-term debts: €200
– Equity: €140
ABC Ltd achieved a turnover excluding tax of €600 with an overall margin of 000%. Final stocks are estimated at €40. The applicable VAT is 60%.
Work to do :
1. Calculate the Total Net Working Capital (FRNG), the Working Capital Requirement (WCR) and the Net Cash (TN) of the company ABC Ltd.
2. Analyze the financial balance of the company.
3. Calculate the debt and financial autonomy ratios.
4. Interpret the ratios obtained in the previous question.
5. Analyze the possible evolution of the company's cash flow taking into account information relating to the overall margin and final stocks.
Proposed correction:
1. The FRNG = Permanent Capital – Fixed Assets = (€140 + €000) – €80 = €000. WCR = Current assets – Operating debts = €120 – €000 = €100. The TN = FRNG – BFR = €000 – €300 = €000
2. The financial balance of the company is precarious because the FRNG is just enough to cover the WCR therefore the TN is equal to 0€. The company does not have the financial flexibility to finance its activities.
3. The debt ratio = LT Debts / Permanent Capital = €80 / €000 = 220 or 000%. The financial autonomy ratio = Equity / Permanent Capital = €0,36 / €36 = 140 or 000%.
4. The company is financed more by equity than by debt, this is a healthy situation. However, the share of debt is still significant and the company could have difficulty meeting its commitments if its financial situation deteriorates.
5. The Overall Margin has a direct impact on net income and therefore on cash flow. With an overall margin of 40% on a turnover excluding tax of €600, the company generates a significant profit. Therefore, TN is expected to increase in the future if inventory management and payment deadlines remain controlled.
Summary of Formulas Used:
| Concept | Formulas |
|---|---|
| FRNG | Permanent Capital – Fixed Assets |
| BFR | Current Assets – Operating Debts |
| TN | FRNG – BFR |
| Rate of endettement | LT Debts / Permanent Capital |
| Financial autonomy ratio | Equity / Permanent Capital |
Application: The EcoGreen Company
States :
EcoGreen is a rapidly growing eco-friendly products company. You are a financial analyst hired to help financial management understand the company's financial situation. The financial information for the year is as follows:
– Global Net Working Capital (FRNG) of the company: €50
– Working Capital Requirement (WCR): €30
– Total fixed assets: €70
– Total equity: €100
– Long-term debts: €40
– Stock: €15
– Operating debts: €25
Work to do :
1. Calculate the net cash flow of the EcoGreen company.
2. Calculate the general solvency ratio.
3. Calculate the company's financial autonomy ratio.
4. What portion of the fixed assets is financed by the FRNG?
5. Interpret the results obtained and provide your recommendations on improving the financial situation of the company.
Proposed correction:
1. The net cash flow of the EcoGreen company is calculated by subtracting the WCR from the FRNG. So, the net cash flow is: €50 – €000 = €30
2. The general solvency ratio is calculated by dividing total equity by total fixed assets. So, the general solvency ratio is: €100 ÷ €000? 70
3. The company's financial autonomy ratio is calculated by dividing equity by total capital employed (equity + long-term debt). So, the financial autonomy ratio is: €100 ÷ (€000 + €100)? 000
4. The portion of the fixed assets financed by the FRNG is calculated as follows: FRNG ÷ fixed assets x 100. Therefore, the portion of the fixed assets financed by the FRNG is: €50 ÷ €000 x 70 ? 000%
5. The analysis of ratios and net cash shows that the company has satisfactory solvency and good financial autonomy. However, the high level of WCR indicates a need to better manage the operating cycle, particularly inventory and trade receivables. Management could consider implementing more effective inventory management policies to reduce inventory investments.
Summary of Formulas Used:
| Concept | Formulas |
|---|---|
| Net cash | FRNG – BFR |
| General solvency ratio | Equity ÷ Fixed assets |
| Financial autonomy ratio | Equity ÷ (Equity + Long-term debt) |
| Share of fixed assets financed by the FRNG | FRNG ÷ Fixed assets x 100 |
Application: Les Saveurs du Terroir company
States :
The company Les Saveurs du Terroir is a delicatessen that offers various French local products. The company has decided for several years to develop a new range of organic products and would like to know if this decision has had a positive impact on these financial indicators.
Here are some elements taken from its functional balance sheet (the amounts are expressed in thousands of euros):
– Fixed assets: €550
– Stock: €400
– Customers: €300
– Active Cash: €200
– Capital: €400
– Reserves: €100
– Financial debts: €250
– Suppliers: €300
– Other debts: €400
– Passive cash flow: €200
Work to do :
1. Calculate the overall net working capital (FRNG).
2. Calculate the working capital requirement (WCR).
3. Calculate net cash (TN).
4. Calculate and interpret the functional balance sheet ratios: financial autonomy ratio and debt ratio.
5. Interpret the results.
Proposed correction:
1. The FRNG is calculated by subtracting the Fixed Assets from the Total Stable Resources (Capital + Reserves + Financial Debts). Which gives: €400+€100+€250 – €550 = €200
2. The WCR is obtained by making the difference between Non-Cash Current Assets (Customers + Stock) and Non-Cash Current Liabilities (Suppliers + Other Debts). So the BFR = 400€ + 300€ – (300€ +400€) = 0 €
3. Net Cash is determined by subtracting the WCR from the FRNG, i.e. €200 – €0 = €200
4. The financial autonomy ratio is deduced by calculating the ratio between Equity (Capital + Reserves) and Total Assets. Which gives: (400€ + 100€) ÷ (550€+400€+300€+200€) = 0,42 or 42%. As for the debt ratio, it is obtained by making the ratio between Financial Debt and Equity, i.e.: €250 ÷ (€400 + €100) = 0,50 or 50%.
5. The Les Saveurs du Terroir Company has a positive FRNG, which means that it has a safety cushion to deal with unforeseen events. In addition, a zero WCR indicates that it manages its payment and recovery deadlines well. Regarding the ratios, the company is financially autonomous at 42%, which is a correct performance. However, its debt ratio of 50% means it is exposed to long-term solvency risk.
Summary of Formulas Used:
| Indicator | Formulas |
|---|---|
| Global Net Working Capital (FRNG) | FRNG = (Capital + Reserves + Financial Debt) – Fixed Assets |
| Working capital requirement (WCR) | WCR = (Customers + Stock) – (Suppliers + Other Debts) |
| Net Cash (TN) | TN = FRNG – BFR |
| Financial autonomy ratio | Financial autonomy ratio = (Capital + Reserves) ÷ Total assets |
| Rate of endettement | Debt Ratio = Financial Debt ÷ (Capital + Reserves) |
Application: Corner Supermarket
States :
Le Supermarché du Coin is a chain of supermarkets located throughout France. In order to evaluate its financial management, you have the following information extracted from the functional balance sheet for year N:
– Overall net working capital (FRNG): €150
– Working capital requirements (WCR): €75
– Net cash flow (TN): €40
In addition, the balance sheet total (TB) for year N is €500.
Work to do :
1. How to calculate the FRNG?
2. How to calculate the WCR?
3. How to calculate the TN?
4. What functional balance sheet ratios can you calculate with this information?
5. How to interpret these results?
Proposed correction:
1. The FRNG is an indicator that measures a company's ability to finance its operating, investment and financing cycles. It is calculated as follows: FRNG = Stable resources (equity + medium and long-term financial debt) – Fixed assets
2. The WCR is an indicator that measures the funds necessary for a company to finance its operating cycle. It is calculated as follows: WCR = Current assets (excluding cash) – Current liabilities (excluding cash)
3. The TN is an indicator which represents either the company's available funds or its financing needs. It is calculated as follows: TN = FRNG – BFR
4. With the balance sheet data, we can calculate several functional balance sheet ratios:
– Short-term solvency ratio = (FRNG + TN) ÷ TB
– Long-term solvency ratio = Stable resources ÷ TB
– Financing ratio of fixed assets by stable resources = Fixed assets ÷ Stable resources
– WCR turnover ratio = Turnover excluding VAT ÷ WCR
5. The positive FRNG indicates that the stable resources of the company (permanent capital) cover the fixed assets, in other words, the company has sufficient long-term resources to cover its long-term needs. The positive WCR suggests that the company has a short-term financing need to cover its operating cycle. A positive TN means that the company has available cash to meet its short-term deadlines.
Summary of Formulas Used:
| Formulas | Description |
|---|---|
| FRNG = Stable resources – Fixed assets | Global Net Working Capital Formula |
| WCR = Current assets (excluding cash) – Current liabilities (excluding cash) | Working Capital Requirement Formula |
| TN = FRNG – BFR | Net Cash Formula |
| Short-term solvency ratio = (FRNG + TN) ÷ TB | Short-term solvency ratio |
| Long-term solvency ratio = Stable resources ÷ TB | Long-term solvency ratio |
| Financing ratio of fixed assets by stable resources = Fixed assets ÷ Stable resources | Financing ratio of fixed assets by stable resources |
| WCR turnover ratio = Turnover excluding tax ÷ WCR | Turnover ratio of Working Capital Requirement |
Application: HyperTech Industrial Company
States :
The industrial company HyperTech wishes to analyze its financial situation based on its end-of-year balance sheet data extracted in €:
Equity: €600
Loans: €200
Fixed assets: €500
Stocks: €200
Customer receivables: €100
Supplier debts: €80
Work to do :
1- Calculate the FRNG of the HyperTech company.
2- Calculate the WCR of the HyperTech company.
3- Calculate the TN of the HyperTech company.
4- What is the cash flow situation of the HyperTech company?
5- What are the main items in the functional assessment that could be improved?
Proposed correction:
1- The FRNG is calculated by subtracting the Fixed Assets from the Stable Resources. In the case of the HyperTech company, the FRNG is (€600 + €000) – €200 = €000.
2- The WCR is calculated by subtracting Supplier Debts from the sum of Inventories and Customer Receivables. For the HyperTech company, the WCR is (€200 + €000) – €100 = €000.
3- The TN is calculated by subtracting the WCR from the FRNG. For the HyperTech company, the TN is therefore €300 – €000 = €220.
4- The HyperTech company’s cash flow is in excess of €80. This means that the company has more stable resources than needed to finance its current activity and its fixed assets. The company therefore has financial room for maneuver.
5- To improve the functional balance sheet items, the company could seek to reduce its inventories or accelerate customer collections to reduce its WCR. It could also seek to renegotiate its payment terms with its suppliers to increase its supplier debts and therefore reduce its WCR.
Summary of Formulas Used:
| Terminology | Formulas |
|---|---|
| Global Net Working Capital (FRNG) | Stable resources (Equity + Borrowings) – Fixed assets |
| Working capital requirement (WCR) | Inventories + Customer receivables – Supplier debts |
| Net Cash (TN) | FRNG – BFR |
| Functional balance sheet ratios | Different depending on the ratio |
– FRNG = Stable resources (Equity + Borrowings) – Fixed assets
– WCR = Inventories + Customer receivables – Supplier debts
– TN = FRNG – BFR
Application: Gourmet Delights Company
States :
The Gourmet Delights Company specializes in the production and distribution of high-end gourmet products. Here is the functional report of this company from last year:
Fixed assets: €500
Stocks: €150
Customer receivables: €250
Cash Assets: €50
Loans: €200
Supplier debts: €100
Liability cash flow: €50
Equity: €600
Work to do :
1. Calculate the Total Net Working Capital (FRNG).
2. Calculate the Working Capital Requirement (WCR).
3. Calculate Net Cash (TN).
4. Calculate and interpret the ratios: general liquidity ratio, financial independence ratio.
5. Interpret the results obtained.
Proposed correction:
1. The Overall Net Working Capital (FRNG) is calculated by the formula: Equity + Borrowings – Fixed Assets
FRNG = €600 + €000 -€200 = €000
2. The Working Capital Requirement (WCR) is calculated by the formula: Inventories + Customer receivables – Supplier debts
WCR = €150 + €000 – €250 = €000
3. Net Cash (TN) is calculated by the formula: FRNG – BFR
TN = €300 – €000 = €300
4. General liquidity ratio = (Customer receivables + Cash assets) ÷ Trade payables = (€250 + €000) ÷ €50 = 000
Financial independence ratio = Equity ÷ Total Liabilities = €600 ÷ (€000 + €600 + €000 + €200) = 000
5. Interpretation:
FRNG of €300 means that the company has sufficient stable resources to cover its fixed assets.
WCR of €300 indicates that the company finances its operating cycle exactly with its FRNG because it is the same amount.
TN of €0 means that the company has neither cash needs nor surpluses.
The current ratio of 3 means that the company can cover its trade payables 3 times with its trade receivables and cash, which is a good sign.
The financial independence ratio of 0,6 indicates that 60% of the company's financing sources come from its own funds, which demonstrates good financial autonomy.
Summary of Formulas Used:
| Formulas | Description |
|---|---|
| FRNG = Equity + Borrowings – Fixed Assets | Global Net Working Capital Formula (FRNG) |
| WCR = Inventories + Customer receivables – Supplier debts | Working Capital Requirement Formula (WCR) |
| TN = FRNG – BFR | Net Cash Formula (TN) |
| General liquidity ratio = (Customer receivables + Cash assets) ÷ Trade payables | Current Ratio Formula |
| Financial independence ratio = Equity ÷ Total Liabilities | Financial Independence Ratio Formula |
Application: Business Innovative Gadgets
States :
The Innovative Gadgets Company provides innovative technology to the consumer sector. You are the company's financial expert. Their functional assessment for the previous year is as follows:
– Fixed assets: €2
– Stocks: €500
– Customer receivables: €400
– Equity: €2
– Long-term financial debts: €200
– Supplier debts: €600
– Tax and social debts: €100
Work to do :
1. Calculate the company's FRNG.
2. Calculate the company's WCR.
3. Calculate the company's TN.
4. Interpret the results obtained.
5. What functional balance sheet ratios would be good to calculate to have a more in-depth understanding of the company's financial situation?
Proposed correction:
1. The FRNG is calculated by the formula: Stable resources – Stable jobs. Here, stable resources correspond to the sum of equity and long-term financial debts: €2 + €200 = €000. Stable jobs correspond to fixed assets: €200. Thus, the FRNG = €000 – €2 = €400.
2. The WCR is calculated by the formula: Current assets – Current liabilities. Here, current assets correspond to the sum of inventories and customer receivables: €500 + €000 = €400. Current liabilities correspond to the sum of supplier debts and tax and social security debts: €000 + €900 = €000. Thus, the WCR = €600 – €000 = €100.
3. The TN is calculated by the formula: FRNG – BFR or €400 – €000 = €200.
4. Based on these calculations, the company has a stable surplus of resources (positive FRNG of €400), which is a sign of good financial health. Furthermore, it has a financing need to cover its current assets (positive WCR of €000). However, the positive net cash flow of €200 indicates that the FRNG more than covers this need, allowing the company to maintain sufficient liquidity.
5. For a more in-depth understanding, we could calculate ratios such as the debt ratio (long-term debt ÷ equity), the general liquidity ratio (current assets ÷ current liabilities) or the solvency ratio (capital equity ÷ balance sheet total). These ratios would provide an indication of the company's ability to repay its debts, meet its short-term obligations and survive in the long term.
Summary of Formulas Used:
| Packages | Definitions |
|---|---|
| FRNG (Global Net Working Capital) = Stable resources – Stable jobs | The FRNG measures the excess of stable resources (equity and medium- and long-term debt) in relation to stable uses (fixed assets). |
| WCR (Working Capital Requirement) = Current assets – Current liabilities | The WCR measures the excess of circulating assets (inventories, customer receivables, etc.) in relation to circulating liabilities (supplier debts, tax and social security debts, etc.). |
| TN (Net Cash) = FRNG – BFR | Net cash (TN) is the amount of money that the company has immediately at its disposal. It is calculated by making the difference between the FRNG and the BFR. |
Application: The Gastronomy store
States :
The Gastronomy Boutique is a small business that provides high-end gourmet products to its customers. She recently experienced some financial problems that required a thorough review of her financial management. At the end of the 2020 fiscal year, the company's accounts indicate the following information:
- Equity: 100 euros
- Long-term debts: 50 euros
- Fixed assets: 120 euros
- Stocks: 15 euros
- Customer debt: 30 euros
- Supplier debt: 25 euros
- Availability: 10 euros
Work to do :
1. Calculate the FRNG of the Gastronomy store.
2. Evaluate the WCR.
3. Determine the TN.
4. Calculate the functional balance sheet ratio.
5. Interpret the results obtained.
Proposed correction:
1. The formula for the FRNG is the gap between stable resources and stable jobs. In our case, stable resources consist of equity and long-term debts (so €100 + €000), and stable uses consist of fixed assets (so €50). So, FRNG = (€000 + €120) – €000 = €100.
2. For the BFR, it is the difference between operating uses and operating resources. Operating uses are inventories and customer receivables (so €15 + €000) and operating resources are supplier debts (so €30). Thus, WCR = (€000 + €25) – €000 = €15.
3. The TN is determined by the FRNG – BFR formula. Substituting the values, we obtain TN = €30 – €000 = €20.
4. The functional balance sheet ratio is calculated as the ratio between the WCR and the FRNG, multiplied by 100 to obtain a percentage. Substituting the values, Ratio = (BFR ÷ FRNG) x 100 = (€20 ÷ €000) x 30 = 000%.
5. Interpretation of the results: The results indicate that the company has a good positive net cash flow of €10, which means that it can cover its working capital requirement. However, the functional balance sheet ratio at 000% suggests a fairly significant dependence of the activity on supplier credit. Indeed, the higher this ratio, the more significant the use of supplier credit is to finance the operating cycle. A rebalancing could be beneficial for the company in order to limit its dependence on its suppliers.
Summary of Formulas Used:
- Global Net Working Capital (FRNG) = Stable Resources – Stable Jobs
- Working Capital Requirement (WCR) = Operating Employment – Operating Resources
- Net Cash (TN) = FRNG – WCR
- Functional Balance Sheet Ratios = (BFR/FRNG) x 100
- Interpretation of Results = Analysis based on the values obtained
Application: Maison Dupont Company
States :
The Maison Dupont company, specializing in the agri-food sector, must update its financial balance sheet. The managers of Maison Dupont want to improve their financial management and therefore decide to hire you as an accountant to analyze their balance sheet and determine the functional balance sheet ratios as well as the interpretation of these results.
Additionally, they want to understand the concepts of overall net working capital (FRNG), working capital requirement (WCR) and net cash flow (TN) for better financial decision-making.
Here is the information you have:
– Equity: €250
– Long-term financial debts: €100
– Short-term financial debts: €75
– Stock: €50
– Customer receivables: €80
– Availability: €20
Work to do :
1. Calculate the Total Net Working Capital (FRNG).
2. Calculate the Working Capital Requirement (WCR).
3. Calculate Net Cash (TN).
4. What is the interpretation of the results obtained in the previous calculations?
5. Could you determine a ratio that could help the company better understand the management of their working capital requirements?
Proposed correction:
1. The formula for calculating the FRNG is: Equity + Long-term financial debts – Short-term financial debts. So, for our case: €250 + €000 – €100 = €000. The company's FRNG is €75.
2. The WCR is calculated by subtracting non-financial debts (i.e. inventories and customer receivables) from short-term financial debts, i.e.: €50 + €000 – €80 = €000. The company's WCR is therefore €75.
3. Finally, Net Cash (TN) is equal to FRNG – WCR, i.e.: €275 – €000 = €55. The company's TN therefore amounts to €000.
4. The interpretation of these results is as follows: the Maison Dupont company has sufficient working capital to cover its working capital requirements, this means that the company can meet its short-term obligations. Its cash flow is positive, so the financial situation is healthy.
5. The WCR turnover ratio can be useful for the company. It is calculated by dividing the turnover by the WCR. This ratio makes it possible to understand how many times during the year the company has returned its working capital requirement thanks to its activity.
Summary of Formulas Used:
| Formulas | Explanation |
|---|---|
| FRNG = Equity + Long-term financial debt – Short-term financial debt | Overall net working capital |
| WCR = (Stock + Customer receivables) – Short-term financial debts | Need in funds |
| TN = FRNG – BFR | Net cash |
| WCR turnover ratio = Turnover ÷ WCR | Ratio enabling the effectiveness of WCR management to be assessed |