1. What is Drawing Power (DP)?

Drawing Power (DP) is a financial metric used by lenders to determine the maximum amount a borrower can withdraw from a working capital facility. It represents the loan amount that can be safely extended based on the borrower's current assets.

2. How Does the Calculator Work?

The calculator uses the Drawing Power formula:

Where:

• \( Stock \) — Value of inventory stock in dollars
• \( Debtors \) — Accounts receivable amount in dollars
• \( Creditors \) — Accounts payable amount in dollars
• \( Margin\% \) — Lender's margin percentage applied

Explanation: The formula calculates the net working capital available and applies a safety margin to determine the maximum loan amount.

3. Importance of Drawing Power Calculation

Details: Accurate DP calculation is crucial for both lenders and borrowers to determine appropriate credit limits, manage cash flow effectively, and maintain healthy financial relationships.

4. Using the Calculator

Tips: Enter current stock value, debtors amount, creditors amount, and the margin percentage. All values must be non-negative numbers with margin between 0-100%.

5. Frequently Asked Questions (FAQ)

Q1: What is a typical margin percentage used by lenders?
A: Margin percentages typically range from 50% to 80%, depending on the quality of collateral and borrower's creditworthiness.

Q2: How often should drawing power be recalculated?
A: Drawing power should be recalculated monthly or quarterly based on updated financial statements and inventory reports.

Q3: What types of assets are included in stock calculation?
A: Finished goods, work-in-progress, and raw materials that are readily saleable and not obsolete.

Q4: Are there any exclusions from debtors amount?
A: Yes, debts older than 90 days, disputed invoices, and amounts due from related parties are typically excluded.

Q5: How does drawing power affect loan disbursements?
A: Borrowers can only withdraw funds up to the calculated drawing power limit at any given time.