For calculating the forecasting of working capital requirements, some popular methods are discussed below:

- Cash Forecasting Method
- Balance Sheet Method
- Profit and Loss Adjustment Method
- Percentage of Sales Method
- Operational Cycle Method
- Regression Analysis Method

**Cash Forecasting Method:**

In this cash forecasting method, the working capital is calculated by using the closing balance of the cash. In this case, consider the payments and receipts are made in the same period.

**Balance Sheet Method:**

In the balance sheet method, the forecasting is madeon the basis of difference between assets and liabilities of the firm. This will show the cash surplus or cash deficiency of the organization.

**Profit and Loss Adjustment Method:**

This method is used to determine the forecasted profit and loss statement of the firm. The cash loss will be adjusted with more cash supply.

**Percentage of Sales Method:**

This method has simple procedures which are easy to understand.To determine the percentage of sales, the firm requires its past statistics of sales.

**Operational Cycle Method:**

The total operational cycle of an organization consists of several processes. To calculate the operational cycle of an organization, the working capital of purchase of raw material to its conversion into cash is considered.

Each of this activity is evaluatedin terms ofnumbers of days and required amount of investment. The total of each stage of investment is the overall working capital of the firm.

To express the operating cycle of an organization, it is determined by using the formula:

T = (r – c) + w + f + b

Where,

T = Total period of operating cycle in number of days

r = Number of days of raw materials and the storage consumption requirement of raw materials

c = Total number of days of credit allowed by the creditors

w = Number of days of cost of production for work in progress

f = The finished stock storage period

Or,

T = Duration of operating cycle in total number of days

r = Raw materials and the storage period

c = creditors payment period

f = Finished stock storage period

w = Work in process period

b = Debtors collection period

**Regression Analysis Method:**

In this method, statistical formula will be used to find out the value of estimated working capital. For this purpose, the average relationship of sales and working capital of the past years are established for the current assets.

**Procedure of calculating the working capital:**

Current Assets

Raw Material xx

Work in Progress xx

Finished Goods xx

Debtors’ xx

Cash xx

Total Current Assets xx

Less: Current Liabilities

Creditors’ xx

Wages xx

Any Other Expenses xx

Total Current Liabilities [TCA – TCL] xx

Working Capital xx

Add: Contingencies xx

Amount of Working Capital Required xx

** **

**Workings:**

- For the computation of cost of all elements, we have to find out numbers of units.
- Computation of Finished Goods:

Raw Material Cost xx

Labour Cost xx

Overhead Cost xx

Finished Goods xx

- As the work in progress and its finished goods remains the same, this means the production occurs uniformly throughout the year. In this case, we have to find out the value of work in progress separately.

Raw Material Cost xx

Labour Cost xx

Overhead Cost xx

Work in Progress xx

Hence, the value of debtors will be calculated. This value either include profit element or not for the calculation process.

**Links of Previous Main Topic:-**

- Introduction to responsibility accounting
- Introduction to financial management
- Introduction and types of dividend
- Concept of cost of capital
- Capitalization meaning
- Concepts of working capital
- Advantages or importance of working capital

**Links of Next Finance Topics:-**