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Miraç Özdemir
Cash Flow & Budgeting

Working Capital Requirement Calculator (Growth Funding)

Calculates the working capital tied up by a business and the extra funding growth requires from annual sales, cost of sales and the collection, inventory and payment periods.

Version 1

Things to keep in mind:

  • Seasonal businesses should use the periods of their peak season rather than the annual average.
  • Other working capital items such as prepaid expenses, advances and tax payables are not modelled.
  • A bank may use its own method when setting credit limits.
  • This tool is for information only and is not financing advice.

Calculator

Annual figures

TRY

Last 12 months or budgeted annual sales (excluding VAT).

TRY

Last 12 months or budgeted cost of sales.

Periods (days)

Average days to collect receivables (DSO).

Average days inventory is held (DIO).

Average days to pay suppliers (DPO).

Growth plan

Sales increase next period; negative for a contraction.

After the first calculation, the result updates automatically when you change a value.

Result

Enter the values and press Calculate to see the result here.

About this tool

The working capital requirement is the money tied up in receivables and inventory to sustain sales that supplier credit does not cover. It grows with sales; it is the main reason profitable but fast-growing businesses run short of cash. Banks assess working capital (revolving, spot) credit limits on this basis.

Formulas

  • Tied up in receivables = Annual sales × Days sales outstanding (DSO) / 365
  • Tied up in inventory = Annual cost of sales × Days inventory outstanding (DIO) / 365
  • Supplier financing = Annual cost of sales × Days payables outstanding (DPO) / 365
  • Working capital requirement = Receivables + Inventory − Trade payables
  • Cash conversion cycle = DSO + DIO − DPO
  • Extra funding from growth = Working capital requirement × Growth rate (if the periods stay the same)

Example: a wholesaler with annual sales of 36,500,000 TRY and cost of sales of 29,200,000 TRY collects receivables in 60 days, holds inventory for 45 days and pays suppliers in 30 days. 6,000,000 TRY is tied up in receivables and 3,600,000 TRY in inventory; suppliers finance 2,400,000 TRY. The working capital requirement is 7,200,000 TRY. If sales grow 25% with the same periods, 1,800,000 TRY of extra funding is needed. Shortening collection by one day frees 100,000 TRY of cash.

How to use

  1. Enter annual (or annualised) net sales and cost of sales.
  2. Enter the collection period, inventory period and payment period in days (the Turnover Ratios tool can calculate them).
  3. Enter the planned sales growth rate and press Calculate.

Notes

Amounts are rounded to the cent and periods to 1 decimal (HALF_UP). A year is taken as 365 days. Trade payables are approximated from cost of sales instead of purchases. A negative requirement means supplier credit exceeds receivables and inventory (e.g. retail). The growth effect is linear, assuming periods and margins stay the same; in a contraction the negative value is cash released.

Sources

Frequently asked questions

4 questions

  1. Trade payables are deducted from trade receivables plus inventories. With the days-based method, receivables = sales × collection period / 365, and inventories and payables = cost of sales × the related period / 365.

Next step

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