Bua cement is an industrial goods industry. It is similar to Dangote cement. Bua Cement 2020 annual report is available on the Nigerian Exchange Group website. I downloaded it and computed the working capital for the company for the 2020 financial year. Let’s go in.
I have rigorously explained working capital. And computed it for several companies. You can read them here. Bua Cement’s working capital is not bad at all. The company maintains a positive value in the 2020 financial statement. It was able to pay off the bank overdraft it owes in the 2019 financial year.
How to compute Bua Cement Working Capital
Download the annual report (you can download it here). Then use an MS Excel Sheet to calculate the working capital of Bua Cement. In the MS Excel sheet, you need to add up all current assets and liabilities separately. Next, subtract current liabilities from current assets. What you arrived at is the working capital. Also called net working capital or net current assets.
From the screenshot above, the total current assets were 238,634,273 and 62,161,029 for the 2020 and 2019 financial years. While the total current liabilities were 208,100,189 and 96,461,863 respectively. If you subtract each years’ current liabilities from their respective current assets you will arrive at the net working capital. That is 96,461,863 and -34,300,834 respectively.
What I thought
Bua Cement has negative working capital for 2019. That’s -34,300,834 in thousands Naira. The reason might be the bank overdraft of 562,066,000 it took. But, in 2020 the company shows positive WC. One reason is that it had paid off its bank overdraft. This resulted in 96,461,863 in thousand Naira for WC.
Bua Cement secured more long-term debts in 2020. This enabled it to nail off its bank overdraft. As it is often said, it is better to finance short-term projects with long-term borrowing than to finance them with short-term debts. This is exactly what the company did. Instead of keeping negative working capital in 2020, it went into long-term borrowings. This money was used to reduce short-term debt on one hand and settle short and long-term projects.
Bua Cement’s working capital was negative in 2019 and positive in 2020. To compute for WC, you subtract current liabilities from current assets. The value shows whether or not the company can meet current (short-term) debts and expenses, as they are outstanding. For Bua Cement, it was able to recoup its negative WC by long-term debt financing, so I thought.