Net Working Capital Calculation Examples Help

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Understanding the concept of Net Working Capital Calculation

 

The net working capital is calculated by simply deducting all current liabilities from all current assets.
Net working capital = Current assets – Current liabilities
 

Current assets refer to resources that are short-term in nature like cash and other resources that are easily convertible into cash.
 

Current liabilities are those liabilities which is payable within 12 months or the normal operating cycle.
 

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Net Working Capital Calculation Example Explanation

 

Let’s Understanding the concept of Net Working Capital Calculation with help of an example.
 

Example
 

The following information has been taken from the balance sheet of Company A.
Current assets $
 

Cash and cash equivalents 100,000
Marketable securities 170,000
Trade and other receivables 200,000
Inventories 400,000
Prepayments 80,000
Total current assets 950,000
 

Non-current assets
 

Long-term investments 400,000
Fixed assets 1,200,000
Total non-current assets 1,700,000
TOTAL ASSETS $ 2,650,000
 

Current liabilities $ 520,000
Non-current liabilities $1,150,000
Stockholders’ equity $ 980,000
TOTAL LIABILITIES & EQUITY $ 2,650,000
 

Computation of net working capital
Net working capital=Current assets – Current liabilities
=$950,000 – $520,000
Net working capital=$430,000
 

This net working capital shows that the company has enough current assets to meet its current liabilities.
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