Question

Calculate operating working capital for both years. Decide whether the change in OWC between the two...

Calculate operating working capital for both years.

Decide whether the change in OWC between the two years represents a cash in or out flow to the company.

Year 1 Year 2
Cash and equivalents 1,965.0 1,987.2
Accounts receivable 4,990.7 4,537.0
Prepaid expenses 425.7 387.0
Current deferred tax asset 380.6 346.4
Deposits to suppliers 257.4 234.0
Other current assets 101.2 92.1
Accounts payable 3,768.6 3,426.0
Deferred revenue 1,051.6 1,002.7
Current deferred tax liability 322.3 293.0

Select one:

138.3 cash in flow

116.1 cash out

138.3 cash out flow

116.1 cash in

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Homework Answers

Answer #1

Answer: $116.1 Cash In

Working:

Year 1:

Operating working capital = Current assets - Current liabilities

Operating working capital = ($1,965 + $4,990.7 + $425.7+$380.6+$257.4+$101.2) - ($3,768.6 +$1,051.6 + $322.3)

Operating working capital = $2,978.1

Year 2:

Operating working capital = Current assets - Current liabilities

Operating working capital = ($1,987.2 + $4,537.0 + $387.0+$346.4+$234.0+$92.1) - ($3,426 +$1,002.7+ $293.0)

Operating working capital = $2,862

Change in operating working capital = $2,978.1 - $2,862 = $116.1

It represents a Decrease in operating working capital is source i.e., cash in flow.

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