Can someone explain me how to calculate Working Capital accurately ? I know general formula like Current Assets – Current Liability but How we interpret Cash and Cash Equivalent in working Capital ? What is excess Cash in Balance Sheet?
Ang Yee Gary: Cash needed to maintain the business.
Ralph Koh: Are you looking for levered free cash flow ?free cash flow less capital expenditure?
Guille Ggh: Net Working Capital is traditionally calculated as non cash current assets – non debt current liabilities. This is equivalent to: NWC = Current Assets – Cash – Current Liabilities + Short Term Debt
Satish Pawar: you are saying to plus the debt in calculation if no typo mistake above Or …See more
Satish Pawar: Do you have any docs/links to read this approach in details ? If yes then please send me
Guille Ggh: NWC = Current assets excluding cash – Current liabilities excluding debt
Guille Ggh: Just study the CFA books on financial statement analysis
Guille Ggh: Working capital should generally take into account neither cash nor debt. Also remember that for your average profitable company, the actual gross level of cash is irrelevant in the sense that the company’s banks are almost always ready to provide liquidity (increase cash as well as debt) on a moment’s notice. If the company is solvent AND profitable, liquidity (actual cash in hand) is a lesser issue.
Ken Faulkenberry: I’m not sure if this answers your question or not: http://www.arborinvestmentplanner.com/working-capital…/
Working Capital and Working Capital Calculations – Arbor Asset Allocation…
Christian Engelund Christensen: Inventory + Due from others – Payables = Working Capital. In terms of liquidity, you remove the increase in working capital, because working capital binds liquidity. Example:Year 15, numbers in MIO USDInventories = 15Due = 10Payables = 20Working Capital = 15+10-20=5Year 16Inventories = 20Due = 12Payables = 15Working Capital = 20+12-15=17Increase in working capital = 17-5=12Removed liquidity = Increase in working capital = 12
Christian Engelund Christensen: Satish Pawar Feel free to contact me, if you have any other questions, you think I might be able to help you with.