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  • Subject Name : Accounting and Finance

Analysis of Working Capital Position Over a Minimum of Past 4 Years

Working capital is defined as the amount of capital required by the business firm to carry out day to day transactions. It helps in measuring the liquidity, short term financial health and operational efficiency of the business organizations (Abor, 2017). It is calculated as the difference between current assets and current liabilities for a specific period of time. Current assets are the assets that have a maturity period of 1 year and are easily convertible into cash and cash equivalents. Current liabilities are defined as the obligations that are to be paid off in the tenure of 1 year. The total current assets of the company have declined to $2774.2 million in 2019 from $2815.2 million in 2018 due to a decline in the amount of cash, maturity investments and assets held for sale (Annual Report, 2019). On the other hand, the amount of current liabilities has increased to $1867.7 million in 2019 as compared to $1643.5 million in 2018 (Annual Report, 2018).

However, the amount of working capital is positive for all the years which indicates that its current assets are more than its current liabilities but it has declined in 2019 to $906.5 million from $1171.7 million in 2018. The amount of working capital was high in 2016 which was $1261.7 million (Annual Report, 2017). This may impact the operations of the company in a negative way. A company may get inefficient in financing its daily operations. Daily operations of the company are concerned with salaries or wages of workers and employees, purchases of inventory and other needs of the equipment. The company must undertake suitable measures to reduce the number of current liabilities in order to survive and grow in the future time period. It must lay emphasis on collecting cash payments which means it should revise its account receivable policies in order to encourage its customers to pay their amount of invoices at early time periods. Investors can only be attracted to invest in a company by maintaining the effective liquidity and solvency position of the company in the market.

Calculation of working capital

Particulars

2019 ($M)

2018 ($M)

2017 ($M)

2016 ($M)

Current assets

       

Cash assets

856

937.4

1038

1378.1

Trade and other receivables

1047.1

961.1

997.9

976.8

Inventories

646.4

626.1

670.3

676.4

Held to maturity investments

83

116.7

   

Derivatives

27

21.2

20.8

35.2

Current tax assets

39.5

34

5.1

1.5

Prepayments

74.1

63.5

66.7

36.8

Assets held for sale

1.1

55.2

0.8

 

Total current assets

2774.2

2815.2

2799.6

3104.8

Current liabilities

       

Trade and other payables

1246

1246.8

1191.9

1194.4

Borrowings

306.6

154.2

420.9

421.5

Other financial liabilities

90.3

67.9

64.4

71.8

Lease liabilities

72.6

     

Employee benefits provisions

109.7

82.4

113.8

97.9

Current tax liabilities

21.2

14.8

27.6

42

Derivatives

21.3

32.2

20.2

15.5

Liabilities associated with assets held for sale

 

45.2

   

Total current liabilities

1867.7

1643.5

1838.8

1843.1

Net working capital (Current assets - current liabilities)

906.5

1171.7

960.8

1261.7

References for Working Capital in Coca-Cola Amatil Limited Analysis

Abor, J. Y. (2017). Working Capital Management. In Entrepreneurial Finance for MSMEs (pp. 225-255). Palgrave Macmillan, Cham.

Annual Report. (2017). Coca-Cola Amatil Limited. Retrieved from https://www.ccamatil.com/-/media/Cca/Corporate/Files/Annual-Reports/2018/Annual-Report-2017.ashx

Annual Report. (2018). Coca-Cola Amatil Limited. Retrieved from https://www.ccamatil.com/-/media/Cca/Corporate/Files/Annual-Reports/2019/2018-Annual-Report.ashx

Annual Report. (2019). Coca-Cola Amatil Limited. Retrieved from https://www.ccamatil.com/-/media/Cca/Corporate/Files/Annual-Reports/2020/2019CocaColaAmatilAnnualReport.ashx

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