STEM help / Calculation framework

10.3.36 Working Capital

At the end of a financial year, not all customers will have paid their bills and similarly the operator will not have paid all its bills.

The amount of revenue which is due to the operator is called Debtors and is specified in terms of how many days, on average, it takes customers to pay their bills, using the Average Debtor Days input. The default is 30 days, which means that, at the end of the year, the operator has still to receive about 8% (30 ÷ 365) of revenue for services provided during the year.

The charge outstanding to the operator is called Creditors, and is similarly specified in terms of how long it takes the operator to pay its bills, using the Average Creditor Days input. The default is also 30 days.

Note: STEM assumes that all debts and bills will be paid after the number of days specified.

For a Service, Working Capital is calculated simply as Debtors minus Creditors, using the Initial Creditors and Initial Debtors inputs to calculate the Change in Working Capital result in year zero.

Because Working Capital represents an amount of money which will be received (or paid out) in the next financial year, it has to be taken into account in the cashflow analysis for each year. The Cashflow from Operations in any year for a Service is therefore the Revenue earned during the year, minus Operating Costs incurred during the year, minus the Changes in Working Capital over the year.

The definition of Working Capital for the Network is more complicated, as it also includes other current assets and liabilities, such as Cash and Tax Owing – see 10.3.14 Financial statements.


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