How to Calculate Change in Net Working Capital from Balance Sheet

Working capital refers to the extent of operating liquidity, a firm, organisation or a business has. It does not matter whether the organisation is private or public; working capital is a must for every company. Similarly, Net Working refers to the present condition of current assets and current liabilities. Net working capital of a company should always be positive otherwise it prompts signs of danger. The net working capital not only includes fixed assets but also involves plants and equipment owned by the organisation. Moreover, the balance sheet of a company shows what is owned or rented by the organisation.

Instructions

  • 1

    Obtain the balance sheet

    It does not matter if you are working on a project, doing an internship or working in an organisation, you can easily obtain the balance sheet of a company. It may be hard for you to obtain the unaudited report of the current year but obtaining the audited reports for the recent year will not be a problem. You can obtain the balance sheet from the website of the company or you can ask the management to provide you a copy of their financial report.

  • 2

    Calculate current assets

    Current assets include things that are owned by you and will be in your control in the next year. The current assets are considered property of the firm and it can dispose off any of these whenever required. These can be anything from land, machinery, vehicles, equipment to accounts receivables. Nevertheless, finding the current assets will not be a problem as you will find all of these under the heading ‘Current Assets’ on left side of the balance sheet.

  • 3

    Calculate liabilities

    After you have calculated the current assets, you should move to the right in order to locate the current liabilities. The liabilities are obligations that a firm has to fulfill no matter how down their operations are going. These includes the debts that the firm has taken form other financing institutions or investors. In addition, it also includes the money which an organisation has to pay to their suppliers or other people under the heading ‘Accounts payable’.

  • 4

    Put values in the formula

    The formula for net working capital is:
    Net Working Capital= Current Assets – Current Liabilities.
    For example, if your current assets are $250,000 and your current liabilities are $150,000 then your Net Working Capital will be $100,000.

Leave a Reply

Your email address will not be published. Required fields are marked *


5 × nine =