Lesson eLearning

A manufacturing firm has current assets of ₹9,50,000, which include inventory ₹4,00,000 and receivables ₹3,20,000. Its current liabilities amount to ₹2,50,000. The firm wants to maintain a cash buffer equal to 15% of its total current assets. Calculate the net working capital required.

medium 3 marks Class 12 · Business Studies · Financial Management
Answer
₹8,42,500

The correct answer is ₹8,42,500 — Hence, the net working capital required is ₹8,42,500.

Step-by-step solution

  1. Compute total current assets: ₹9,50,000.
  2. Calculate cash buffer: 15% of ₹9,50,000 = ₹1,42,500.
  3. Add the buffer to the current assets to get required current assets: ₹9,50,000 + ₹1,42,500 = ₹10,92,500.
  4. Subtract current liabilities to obtain net working capital: ₹10,92,500 – ₹2,50,000 = ₹8,42,500.
  5. Hence, the net working capital required is ₹8,42,500.
Common mistake: Adding the buffer to liabilities instead of to current assets

Concept tested: Net working capital calculation with cash buffer

Published · How this solution was prepared and checked

← All Financial Management questions