In this article, I compute the net working capital for Eterna oil PLC. The company has its shares listed in the Nigerian Exchange Group. I downloaded the financial statement (FS) for 2020. Take out the data I need in MS Excel. Then calculate NWC.
Net working capital is simply the difference between current assets and current liabilities. So, you get the total of the current assets and subtract it from the total of current liabilities. Below is the MS Excel data from Eterna PLC.
The current assets for the group were 21.6 and 16.0 billion Naira for 2020 and 2019 respectively. While for the company, it was 22.2 and 16.3 billion Naira. On the other hand, the total current liabilities were 20.4 and 14.1 billion Naira for the group. Then, 20.4 and 13.9 billion Naira for the company. The result was the net working capital as shown in the above screenshot. The Group computed WC are 1.2 and 1.9 billion Naira for 2020 and 2019. The company’s WC was 1.7 and 2.4 billion Naira.
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What to note about Eterna Oil PLC Working Capital
The values of the working capital for the years under review were positive. This simply implies that the Eterna oil PLC meet their obligations and have extra funds that can be used for other purposes. The company maintains a large number of inventories and trade receivables under the current assets section. It also has high trade payables and short-term borrowings. To pay its obligations, say borrowings, it must sell part of its inventory and recover trade receivables.
The company keeps a smaller amount of cash when compared to inventories and receivables. This implied that cash and bank balances are kept low. And are recycled to inventories and trade receivables.
Eterna Oil PLC maintains a strong working capital position. The company can meet any operating obligations as soon as they are due. However, to meet this obligation, it must sell inventories and recover the debt. More so, the company maintains smaller cash and bank balances.