, RSK4804
ASSIGNMENT 2 2026
DUE 28 AUGUST 2026
QUESTION 1
1.1 Discuss the working capital requirements of Sedibelo Enterprises.
Working capital is broadly defined in two ways: gross working capital, which refers to a firm’s total
investment in current assets, and net working capital, which is the difference between current
assets and current liabilities (Gitman 2018, p. 520). For Sedibelo Enterprises, the gross working
capital amounts to R51,000 (Investments R9,000 + Stock R16,000 + Trade debtors R19,000 + Other
debtors R6,000 + Cash R10,000). Its current liabilities total R30,000 (Trade creditors R22,000 +
Accruals and others R8,000), resulting in a net working capital of R21,000. This positive net working
capital indicates that the company has a liquidity buffer to cover its short-term obligations as they
fall due (Brealey, Myers & Allen 2020, p. 735).
To properly discuss the working capital requirements of Sedibelo Enterprises, one must examine
the management of its individual current asset and liability components, as the firm’s overall
requirement is determined by the operating cycle and the financing policies it adopts (Van Horne &
Wachowicz 2008, p. 289).
Firstly, the company’s stock (inventory) of R16,000 represents a significant investment requirement.
Holding stock is necessary to meet customer demand and avoid production stoppages, but it also
ties up cash and incurs storage and obsolescence costs (Brealey, Myers & Allen 2020, p. 740).
Sedibelo’s requirement here is to balance having sufficient inventory against the carrying costs, and
a ratio of stock to total current assets (31.4%) suggests a moderate, though not excessive, holding
requirement.
Secondly, trade debtors (accounts receivable) amount to R19,000, which is the largest single
current asset. This reflects the company's credit policy and represents funds that are temporarily
locked up while waiting for customers to pay (Gitman 2018, p. 535). The working capital
requirement here is substantial; if Sedibelo offers extended credit terms to customers, it will need
more external funding or retained cash to bridge the gap between the sale and the actual receipt of
cash. The presence of R6,000 in other debtors further increases this requirement, suggesting funds
are also tied up in non-trade advances or deposits.
Thirdly, the company holds cash of R10,000, which is a relatively high liquidity position given its
total current liabilities of R30,000. While a cash balance is required for precautionary and
transactional motives, holding excess cash is an inefficient use of capital because it earns minimal
returns (Van Horne & Wachowicz 2008, p. 606). Sedibelo’s working capital requirement could
potentially be reduced by investing this excess cash more productively or using it to pay down
short-term liabilities.
ASSIGNMENT 2 2026
DUE 28 AUGUST 2026
QUESTION 1
1.1 Discuss the working capital requirements of Sedibelo Enterprises.
Working capital is broadly defined in two ways: gross working capital, which refers to a firm’s total
investment in current assets, and net working capital, which is the difference between current
assets and current liabilities (Gitman 2018, p. 520). For Sedibelo Enterprises, the gross working
capital amounts to R51,000 (Investments R9,000 + Stock R16,000 + Trade debtors R19,000 + Other
debtors R6,000 + Cash R10,000). Its current liabilities total R30,000 (Trade creditors R22,000 +
Accruals and others R8,000), resulting in a net working capital of R21,000. This positive net working
capital indicates that the company has a liquidity buffer to cover its short-term obligations as they
fall due (Brealey, Myers & Allen 2020, p. 735).
To properly discuss the working capital requirements of Sedibelo Enterprises, one must examine
the management of its individual current asset and liability components, as the firm’s overall
requirement is determined by the operating cycle and the financing policies it adopts (Van Horne &
Wachowicz 2008, p. 289).
Firstly, the company’s stock (inventory) of R16,000 represents a significant investment requirement.
Holding stock is necessary to meet customer demand and avoid production stoppages, but it also
ties up cash and incurs storage and obsolescence costs (Brealey, Myers & Allen 2020, p. 740).
Sedibelo’s requirement here is to balance having sufficient inventory against the carrying costs, and
a ratio of stock to total current assets (31.4%) suggests a moderate, though not excessive, holding
requirement.
Secondly, trade debtors (accounts receivable) amount to R19,000, which is the largest single
current asset. This reflects the company's credit policy and represents funds that are temporarily
locked up while waiting for customers to pay (Gitman 2018, p. 535). The working capital
requirement here is substantial; if Sedibelo offers extended credit terms to customers, it will need
more external funding or retained cash to bridge the gap between the sale and the actual receipt of
cash. The presence of R6,000 in other debtors further increases this requirement, suggesting funds
are also tied up in non-trade advances or deposits.
Thirdly, the company holds cash of R10,000, which is a relatively high liquidity position given its
total current liabilities of R30,000. While a cash balance is required for precautionary and
transactional motives, holding excess cash is an inefficient use of capital because it earns minimal
returns (Van Horne & Wachowicz 2008, p. 606). Sedibelo’s working capital requirement could
potentially be reduced by investing this excess cash more productively or using it to pay down
short-term liabilities.
