Question

The following is the balance sheet for Ford Motor Company as of December 31, 1994 (in millions). Assets Liabilities Cash $ 19,927 Accounts payable $ 11,635 Receivables $132,904 Debt due within 1 year $ 36,240 Inventory $ 10,128 Other current liabilities $ 2,721 Current assets $ 91,524 Current liabilities $ 50,596 Fixed assets $ 45,586 Short-term debt $ 36,200 Long-term debt $ 37,490 Equity $ 12,824 Total assets $137,110 Total liabilities $137,110 The firm had revenues of $154,951 million in 1994 and cost of goods sold of $103,817 million. a. Estimate the net working capital. b. Estimate the noncash working capital. c. Estimate noncash working capital as a percent of revenues. 5. Continuing problem 4, assume that you expect Ford's revenues to grow 10% a year for the next five years. a. Estimate the expected changes in noncash working capital each year, assum- ing that noncash working capital as a percent of revenues remains at 1994 levels. b. Estimate the expected changes in noncash working capital each year, assum- ing that noncash working capital as a percent of revenues will converge on the industry average of 4.3% of revenues.

Answer 1

Answer :

(4) (a) Estimation of Net working capital = Current assets - Current liabilities

Particulars	Amount
Current assets (Given)	$91,524
Less : Current Liabilities	$50,596
Net working capital	$40,928

(b).

Estimation of Non cash net working capital = Current assets (Excluding cash) - Current Liabilities

Particulars	Amount
Current Assets (Given)	$91,524
Less : Cash	$19,927
Non cash current assets	$71,597
Less : Current Liabilities	$50,596
Non cash net working capital	$21,001

(c). Estimation of Non cash net working capital as percentage of Revenue = Non cash working capital / Revenue

Non Cash Net Working Capital	$21,001
Firm's Revenue in 1994	$1,54,951
Non Cash Net workig capital as a percentage of Revenues	21001/154951*100
Non Cash Net workig capital as a percentage of Revenues	13.55%

(5).

(a). Estimation of net working capital for next five years

Given that revenue grow @10% for next five years from $154,951

Particulars	1995	1996	1997	1998	1999
Revenue	$1,70,446	$1,87,491	$2,06,240	$2,26,864	$2,49,550
Non cash net working capital as a percentage of revenue	13.55%	13.55%	13.55%	13.55%	13.55%
Non cash net working capital as a percentage of revenue	$23,095	$25,405	$27,946	$30,740	$33,814

(b).Estimation of net working capital for next five years with industry coverage of non cash working cpaital as 4.3% of revenue

Particulars	1995	1996	1997	1998	1999
Revenue	$1,70,446	$1,87,491	$2,06,240	$2,26,864	$2,49,550
Non cash net working capital as a percnentage of revenue	14.13%	14.74%	15.37%	16.03%	16.72%
Non cash net working capital as percentage of revenue	$24,084	27,636	$31,699	$36,366	$41,725

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