How to Calculate the Net Working Capital on Cash Flow
- 1). Find the amount of a company's current assets and current liabilities on its most recent balance sheet and the previous accounting period's balance sheet.
- 2). Subtract the company's current liabilities from its current assets for the previous accounting period. For example, subtract $200,000 in current liabilities from $450,000 in current assets. This equals $250,000 in net working capital for the previous accounting period.
- 3). Subtract the company's current liabilities from its current assets for the most recent accounting period. For example, subtract $250,000 in current liabilities from $350,000 in current assets. This equals $100,000 in net working capital for the most recent accounting period.
- 4). Subtract the previous period's net working capital from the most recent period's net working capital to determine the change in net working capital. A positive number represents an increase in net working capital, while a negative number represents a decrease. For example, subtract $250,000 in net working capital in the previous period from $100,000 in net working capital in the most recent period. This equals negative $150,000, which represents a $150,000 decrease in net working capital between the two periods. By definition, this adds $150,000 to the company's cash flow from operations for the accounting period.