Working CapitalThe Working Capital category examines your reserves. You do not want too much or too little working capital. There are three criteria:
- You earn 50 points if your Current Ratio is greater than 2.0.
- You earn another 50 points if your Days of Working Capital lies between 30 and 90 days.
- You lose your Working Capital points if you had an Emergency Loan.
Working Capital = Current Assets minus Current Liabilities
Current Ratio = Current Assets / Current Liabilities = (Cash + A/R + Inventory) / (A/P + Current Debt)
Days of Working Capital = Working Capital / (Sales/365)
For example, in the sample below, you would earn 50 points for a Current Ratio of 3.2, another 50 points for a Working Capital Days of 65, and you would keep the points because you avoided an Emergency Loan.
| ASSETS ($000) | ||
|---|---|---|
| Current Assets | ||
| Cash | $1,260 | |
| Accts Receivable | $7,522 | |
| Inventories | $22,388 | |
| CurrentAssets | $31,170 | |
| Fixed Assets | ||
| Plant & Equip. | $113,800 | |
| Accum. Deprec. | ($45,900) | |
| Total Fixed Assets | $67,900 | |
| TOTAL ASSETS | $99,070 | |
| Working Capital | $21,378 | |
| Current Ratio | 3.2 | |
| Sales ($000) | $120,000 | |
| Days of Working Capital | 65.0 | |
| LIABILITIES & OWNER'S EQUITY | ||
|---|---|---|
| Liabilities | ||
| Accts Payable | $6,291 | |
| Current Debt | $3,500 | |
| Current Liabilities | $9,791 | |
| Long Term Debt | $39,000 | |
| Total Liabilities | $48,791 | |
| Owner's Equity | ||
| Common Stock | $18,276 | |
| Retained Earn. | $32,003 | |
| Total Equity | $50,279 | |
| TOTAL LIAB. & O.E. | $99,070 | |