In this video on Changes in Net Working Capital, here we discuss this topic in detail including its meaning, formula, calculation of changes in working capital along with examples

𝐖𝐡𝐚𝐭 𝐚𝐫𝐞 𝐂𝐡𝐚𝐧𝐠𝐞𝐬 𝐢𝐧 𝐍𝐞𝐭 𝐖𝐨𝐫𝐤𝐢𝐧𝐠 𝐂𝐚𝐩𝐢𝐭𝐚𝐥?
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Changes in net working capital are defined as the difference between the current and the previous year in working capital.

𝐒𝐭𝐞𝐩𝐬 𝐭𝐨 𝐂𝐚𝐥𝐜𝐮𝐥𝐚𝐭𝐞 𝐂𝐡𝐚𝐧𝐠𝐞𝐬 𝐢𝐧 𝐍𝐞𝐭 𝐖𝐨𝐫𝐤𝐢𝐧𝐠 𝐂𝐚𝐩𝐢𝐭𝐚𝐥
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Step#1 - Calculate the Current Assets for the current year and previous year.

Step#2 - Find the Current Liability for the Current Year and Previous Year.

Step #3 - Find Working Capital for the Current Year and Previous Year

Step #4 - Calculate Changes in Net Working Capital using the formula

𝐂𝐡𝐚𝐧𝐠𝐞𝐬 𝐢𝐧 𝐍𝐞𝐭 𝐖𝐨𝐫𝐤𝐢𝐧𝐠 𝐂𝐚𝐩𝐢𝐭𝐚𝐥 𝐅𝐨𝐫𝐦𝐮𝐥𝐚
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Changes in Net Working Capital Formula = Working Capital (Current Year) – Working Capital (Previous Year)

𝐂𝐡𝐚𝐧𝐠𝐞𝐬 𝐢𝐧 𝐍𝐞𝐭 𝐖𝐨𝐫𝐤𝐢𝐧𝐠 𝐂𝐚𝐩𝐢𝐭𝐚𝐥 𝐄𝐱𝐚𝐦𝐩𝐥𝐞
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Let's consider the following data

Working Capital (2017)

Current Assets (2017) = 4,500
Current Liabilities (2017) = 3,400
Working Capital (2017) = 4,500 – 3,400 = $ 1100 million

Working Capital (2016)

Current Assets (2016) = 4,400
Current Liabilities (2016) = 3,600
Working Capital (2016) = 4,400 – 3,600 = $800 million

Net change in Working Capital = 1100 – 800 = $300 million (cash outflow).

To know more about the 𝐂𝐡𝐚𝐧𝐠𝐞𝐬 𝐢𝐧 𝐍𝐞𝐭 𝐖𝐨𝐫𝐤𝐢𝐧𝐠 𝐂𝐚𝐩𝐢𝐭𝐚𝐥, you can go to this 𝐥𝐢𝐧𝐤 𝐡𝐞𝐫𝐞:- https://www.wallstreetmojo.com/changes-in-net-working-capital/

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