Working capital: release cash without inventing profit
A fictional manufacturer has strong reported profit but growing funding pressure. The CFO wants a working-capital plan that distinguishes one-time cash release from recurring earnings improvement.
Original Finance Circle manufacturer scenario with fictional balances. KPMG’s published case-presentation programme informs the presentation format only; this is not a KPMG competition case or interview question.
Independent Finance Circle learning material. The source organisation does not sponsor, author or endorse this exercise.
Clarify. Structure. Calculate. Defend.
Take 2 minutes to clarify the decision and definitions, 3 minutes to structure the analysis, then work the exhibits. Finish with a concise recommendation and answer a follow-up. The time is a suggested practice format, not an employer requirement.
Clarify before solving
What are the data basis and reporting boundary?
Original Finance Circle manufacturer scenario with fictional balances. KPMG’s published case-presentation programme informs the presentation format only; this is not a KPMG competition case or interview question.
Which assumptions can I use without requesting more data?
CAD millions; use a 365-day year. Annual credit revenue 365 and COGS 219, both unchanged. Current DSO 60, DIO 80 and DPO 45. Targets: DSO 50, DIO 70 and DPO 50. AR uses revenue; inventory and AP use COGS.
What decision am I expected to support?
Calculate annual financing savings and net annual pretax benefit after the required discount cost.
Build your structure
- Correct revenue / cost bases for days metrics
- Receivables, inventory and payables targets
- One-time cash release versus recurring benefit
- Discount costs, terms and operational trade-offs
Use the branches that matter to this decision. A memorised framework is less useful than explaining why each analysis could change your recommendation.
Everything you need to work the case.
Assumptions & boundaries
- CAD millions; use a 365-day year. Annual credit revenue 365 and COGS 219, both unchanged.
- Current DSO 60, DIO 80 and DPO 45. Targets: DSO 50, DIO 70 and DPO 50. AR uses revenue; inventory and AP use COGS.
- Director scenario: finance costs saved are 8% annually on the full cash release. An annual early-payment discount cost of 0.4 is required to reach the targets. No other profit effects.
Illustrative working-capital drivers
| Measure | Current | Target |
|---|---|---|
| DSO | 60 days | 50 days |
| DIO | 80 days | 70 days |
| DPO | 45 days | 50 days |
| Annual revenue | 365 | 365 |
| Annual COGS | 219 | 219 |
Choose the responsibility. Solve the decision.
Each level uses the exhibits above and asks a different question. Your entries stay in this open page only; copy your work before leaving.
Build current net working capital.
Calculate current receivables, inventory and payables, then net operating working capital.
Why do inventory and payables use COGS rather than revenue?
Numerical checks compare your arithmetic with the case model. Written recommendations are self-practice and are not automatically graded.
03 · Reveal worked solution & decision guide
Expected numerical answers
- Receivables
- 60 CAD million
- Inventory
- 48 CAD million
- Payables
- 27 CAD million
- Net operating working capital
- 81 CAD million
Work through the calculation
- AR = 365 × 60 / 365 = 60. Inventory = 219 × 80 / 365 = 48. AP = 219 × 45 / 365 = 27.
- Net operating working capital = 60 + 48 − 27 = 81.
A strong concise response
My calculation shows that receivables is 60 CAD million; inventory is 48 CAD million; payables is 27 CAD million; net operating working capital is 81 CAD million. Use the correct denominator for each days measure. Applying revenue to inventory and AP would overstate balances in this case.
Answer the interviewer follow-up
Why do inventory and payables use COGS rather than revenue?
The case uses cost-based inventory and purchase-cycle approximations. Using revenue would embed sales margin and overstate the modelled balances.
Assessment rubric · 20 points
For self-review or mentor discussion. This rubric is not an automated written-answer grade or an employer scoring system.
Correctly derives all 4 numerical results for this level, keeps signs and units consistent, and explains the method.
Explains the objective: Build current net working capital. States the supplied scope, timing and metric definitions before calculating.
Use the correct denominator for each days measure. Applying revenue to inventory and AP would overstate balances in this case. Addresses the interviewer follow-up without contradicting the facts.
Leads with a clear conclusion, distinguishes facts from assumptions, and identifies the next evidence needed. Does not claim the source company asked or endorsed this question.
Use full precision until the final rounding. Alternative written recommendations may be reasonable if they respect the facts and explain assumptions. This is Finance Circle’s guide, not an official source-company answer.
Source & attribution
The references below identify the public reporting, hiring guidance, research or mock-interview material used for context. Finance Circle wrote the exercise and its answers. Illustrative figures are explicitly identified; they are not company results or findings.
Employer-published case-programme format, not a disclosed employer question. All finance facts and answers are original.
Source reviewed 30 October 2026. No external page is needed to answer this exercise. Company names and logos identify sources only. All trademarks belong to their respective owners.