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Calculate working capital

learn how you can calculate working capital

Watch the following video as it provides context and goes through an example of how you can calculate working capital using the formula:

Current assets – current liabilities

Watch: Working capital explained (4:45) [1]

As you saw in the video, the most appropriate method for calculating working capital is using a balance sheet.

"Current assets table shows: Cash: $20,000; Accounts receivable= $15,000; Inventories= $45,000. Current liabilities table shows: Accounts payable=$25,000, Short-term borrowings=$5,000, Accured liabilities= $10,000 - Working capital=$40,000 Equation for working capital: Current assets minus current liabilities equals working capital. "

Share your thoughts

If you search and read about McDonald’s financial data between 1999 and 2000, you will find that the organisation showed a negative working capital and today it still manages to function as a successful business.

Do you think negative working capital can ever be a benefit? How do you think negative working capital might have benefitted McDonald’s?

References

1. Working capital explained [Video]. The Finance Storyteller; 2019 Jan 30. Available from: https://www.youtube.com/watch?v=XvHAlui-Bno

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Financial Analysis for Business Decisions: Cash Flow Management

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