Question

1. Compute capital for ATC in 2019 as well as excess cash and working capital

ATC Company
Balance Sheet on December31 ($ millions)
	2018	2019
Inventory	20	28
Accounts Receivable	36	26
Other	29	36
Cash	410	473
Total Current Assets	495	562
NPPE	1,847	2,237
Other Fixed Assets	156	212
Total Fixed Assets	2,003	2,449
Total Assets	2,499	3,011
Short Term Debt and Notes	152	173
Accounts Payable	27	28
Other	334	412
Total Current Liabilities	514	613
Long Term Debt	1,119	1,249
Other Long Term Liabilities	175	266
Total Long Term Liabilities	1,294	1,515
Common Equity	690	884
Total Liabilities & Equity	2,499	3,011

Income Statement for Year Ending December 31 ($ millions)
	2018	2019
Total revenues	1,667	1,841
Cost of sales	1,250	1,297
Gross profit	417	544
Selling, general & admin expenses	174	180
Operating profit	243	364
Net interest expense	45	64
Other income (expense)	0	2
Income before tax	199	301
Taxes	38	69
Net Income	162	232

Answer 1

1) Capital Employed by ATC in 2019:

The capital employed by a company is the sum total of its equity & non-current liabilities or it is the difference between the total assets and the current liabilities of the company,

The capital employed by ATC in 2019 =

3011 - 613 = 2398 (Total Assets - Current Liabilities)

similarly, 884 + 1515 = 2399 (Equity + Long Term or Non Current Liabilities)

2) Working Capital in 2019:

Working capital of a company is the difference between its current assets and current liabilities.

It denotes the capital or resources required to conduct day to day operations.

Here,

Working Capital = 562 - 613 = -51 (Current Assets - Current Liabilities)

3) Excess Cash in 2019:

Excess Cash for a company is the extra available cash balance (cash & equivalents) after deducting the funds required for day to day operations (working capital)

Hence,

Excess Cash = 473 - (-51) = 524 (Cash - Working Capital)