Page 73 - DCOM505_WORKING_CAPITAL_MANAGEMENT

Working Capital Management

Notes 2 Method `
nd
Working capital gap 4,25,00,000
Less: 25% of CAs (1,23,75,000)
MPBF 3,01,25,000

3 Method
rd
Total current assets – Core current assets = ` 4,95,00,000 – 1,00,00,000
= ` 3,95,00,000
`

Real current assets 3,95,00,000
Less: 25% 98,75,000
2,96,25,000

Less: Current Liabilities 70,00,000
MPBF 2,26,25,000

Case Study Bajaj Electronics Company

T his case has been framed in order to test the skills in evaluating a credit request and
reaching a correct decision. Perluence International is large manufacturer of
petroleum and rubber-based products used in a variety of commercial applications
in the fields of transportation, electronics, and heavy manufacturing. In the northwestern
United States, many of the Perluence products are marketed by a wholly-owned subsidiary,
Bajaj Electronics Company. Operating from a headquarters and warehouse facility in San
Antonio, Strand Electronics has 950 employees and handles a volume of $85 million in
sales annually. About $6 million of the sales represents items manufactured by Perluence.

Gupta is the credit manager at Bajaj electronics. He supervises five employees who handle
credit application and collections on 4,600 accounts. The accounts range in size form $120
to $85,000. The firm sells on varied terms, with 2/10, net 30 mostly. Sales fluctuate
seasonally and the average collection period tends to run 40 days. Bad-debt losses are less
than 0.6 per cent of sales.

Gupta is evaluating a credit application from Booth Plastics, Inc., a wholesale supply
dealer serving the oil industry. The company was founded in 1977 by Neck A. Booth and
has grown steadily since that time. Bajaj Electronics is not selling any products to Booth
Plastics and had no previous contact with Neck Booth.
Bajaj Electronics purchased goods from Perluence International under the same terms and
conditions as Perluence used when it sold to independent customers. Although Bajaj
Electronics generally followed Perluence in setting its prices, the subsidiary operated
independently and could adjust price levels to meet its own marketing strategies. The
Perluence’s cot-accounting department estimated a 24 per cent markup as the average for
items sold to Pucca Electronics. Bajaj Electronics, in turn, resold the items to yield a 17 per
cent markup. It appeared that these percentages would hold on any sales to Booth Plastics.
Bajaj Electronics incurred out-of pocket expenses that were not considered in calculating
the 17 per cent markup on its items. For example, the contact with Booth Plastics had been
Contd...

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