Working Capital Strategies

WORKING CAPITAL STRATEGY
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(03, November, 2010)
Working Capital Strategy
Working capital measures an organizations management of funds in the short term. It measures the liquidity of a company’s assets and determines if a company can pay its short term cash obligations in the short term.
2009 2008
Current ratio = current assets = 48754 = 0.88 47053 = 0.81
Current liabilities 55307 58338
Net working capital = 55,307- 48, 754 = 6,553 58,338- 47,053 = 11,285
Quick ratio = Current assets less stocks = 48754-34511= 0.26 47053-35159 = 0.20
Current Liabilities 55307 58338
Debtor’s day = trade debtors = 3905 x 365 = 3.6 days 3642 x 365 = 3.6 days
Credit sales turnover 401244 374307
Stock turnover = Average inventory = 34511x 365 = 41.14 days 35159 x365 = 44.81 days
Cost of sales 306158 286350
Creditors’ turnover period
= average trade creditors = 28848 x 365 = 34.4 days 30344 x 365 = 38.68 days
Purchases of Cost of Sales 306158 286350
Operating cycle (3.6+41.14-34.4) = 10.34 days 3.6+44.81-38.68= 9.73 days
An organization should have enough liquid assets to pay its short term obligations. This is measured by the current ratio. For Wal-Mart the ratio was 0.9 in 2009 up from 0.8 in 2008. This is an improvement. This means that there was better management of working capital in 2009. This can be attributed to the reduction in inventory management. It takes 3.67 less days to sell off inventory than it did in 2008. This means that the company has reduced on the amount of funds it holds in inventory. The company ...