How much cash would that sale require

Working Capital Per $ of Sales

Have you ever been in a situation where you need to know the cash impact of a new customer, or an additional product range from a new supplier, or for that matter how a bid would create cash.

Working capital per $ of revenue could be most helpful in these cases.

Step 1 Calculate your average working capital per $ of revenue (WC/$) (see example below)

Step 2 Multiply your revenue with the (WC/$), adjust for the time period if less than a year. = Total working capital retention at the end of the period

Step 3 = Take your gross profit contribution and deduct your working capital requirement this is the cash impact due to the transaction as at the end of the period.

Hope this helps

Working Capital per $ of revenue			20.55	(j) = (g/ixh)/a)*100
Working capital (adjusted for the revenue period divided by revenue x 100)
Sales/Revenue			3,000,000	(a)
COGS			2,500,000	(b)
Gross profit			500,000	(c )
Gross profit %			17%
					Days
Accounts receivable			600,000	(d)	36
Inventory			840,000	( e)	60
Accounts payable			190,000	(f)	14
Working Capital			1,250,000	(g)= (d+e-f)
Working Capital per $ sales			20.55
Days in period			180	(h)
Days in year			365	(i)
Per the above example
Revenue (sales)			3,000,000
Working Capital per $ revenue			20.55
Required working capital			1,250,000
Profit contribution			500,000
Cash required to fund first 180 days			750,000