January 29, 2022

Accounting + Finance Blog

# MRS Oil Working Capital Computation for 2020 FS

MRS Oil working capital, “WC” is computed from its 2020 financial statement (FS). The company was able to maintain its WC for 2020 despite a fall in total current assets when compared to 2019. Let’s discuss!

To compute working capital, you get the total of the company’s current assets and current liabilities. Then, subtract the total current liabilities from the total assets. Generally, the formula for WC is given as total current assets minus total current liabilities. The screenshot below explains how I get my WC for MRS Oil.

From the above screenshot, you can see that MRS Oil has total current assets of 20,825,026,000 Naira. And a total current liabilities of 18,872,327,000, in its 2020 financial year. Upon subtracting both figures, the MRS Oil working capital becomes 1,952,699,000 Naira. We can replicate this for 2019. Here, the total current assets are 26,851,822,000, total current liabilities are 23,684,337,000 Naira. And the WC is 3,167,485,000 Naira.

### What you should know about MRS Oil Working Capital (WC)

MRS Oil’s working capital was 1,952,699,000 Naira in 2020 and 3,167,485,000 Naira in 2019. This means that the WC falls by 38.35 percent. However, in both years the company maintained a positive WC. This implies that MRS Oil can meet all current obligations as they are available for payment. The company maintains a good cash and cash equivalents position in 2020 compared to 2019, as you can see from the screenshot.

The reason for the decline in the value of working capital is the result of a decrease in inventory and account receivables figures. The value of inventory in 2019 was 6,180,329,000 Naira. But it dropped to 3,831,314,000 Naira in 2020. Also, trade and other receivables fall to 12,364,105,000 in 2020 from 17,999,700,000 in 2019.

MRS Oil has high trade and other payable figures. To pay all trade and other payables, the company needs a combination of two line items in the current assets. It can use a combination of cash and cash equivalents and trade and other receivables. Or inventory and trade and other receivables. This is true for both years. The company’s huge account receivables (trade and other receivables) figures may affect the company if its credit team is not effective.

Conclusion

To wrap it up, MRS Oil working capital is positive in 2020 compared to 2019. However, there was a fall in the value. This is a result of the fall in inventory and account receivables figures. The company’s positive WC means that it can pay up its liabilities anytime it is due.

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