馃攳
Changes in Net Working Capital | Calculation with Example - YouTube
Channel: WallStreetMojo
[9]
hello everyone hi and welcome to the
channel to Wall Street module to know
[14]
more about this video changes in working
capital watch the video till the end and
[18]
if you are new to this channel then you
can subscribers by clicking the bell
[22]
like and that's given below welcome
everyone today we have a topic with us
[27]
is changes in net working capital let me
give you a short synopsis what is going
[33]
to be a too-tall this is going to be how
or all about say first topic is going to
[39]
be what are the changes in the
networking capital
[42]
post facto we will try and understand
some of the steps how the whole how the
[49]
the flow will run and then we will work
on the analysis part of the changes in
[57]
the working capital so once we have got
the concept once you've got they drill
[61]
down all the steps you're going to do
some analysis work and post factor it
[64]
will be in conclusion to the whole topic
well let's begin now as you can see you
[70]
will hear there is a chart of the
networking capital of colgate-palmolive
[74]
company and the changes here is that it
starts ok and then there is a drip
[80]
downfall ok let me just give you a
background see changes in net working
[85]
capital is defined as a difference
between the working capital from the
[89]
working capital from the current here
okay working capital of the current here
[96]
and previous you so the working capital
is a forms current asset working capital
[105]
is equal to forms current asset - forms
current liability ok well this is going
[113]
to be the scenario now the formula is
over here something like this the
[119]
changes in the net working capital is
equal to in net working capital
[131]
is equal to working capital of current
year - working capital of previous year
[142]
okay so you can also do this by you know
just write change in in in in the net
[152]
working capital formula is equal to
change in current asset less changes in
[165]
current liability now how to calculate
the changes in the net working capital
[170]
very important so first we will do step
one see the step one is to find the
[176]
current asset for the current year find
out the current asset for current year
[184]
and previous year remember
okay so from the current point of view
[191]
we consider inventory is the first thing
post facto we take into account the
[199]
account receivables and so called
prepaid expenses now the step two step
[210]
two is to find the current liability for
the current here and three visio so from
[220]
the current liability we consider
accounts payable interest payable and
[229]
default revenue then comes the step
number three which is you need to find
[237]
the working capital for find the working
capital for current here okay so that is
[249]
equal to current assets less current
liabilities okay and working capital of
[259]
the current year current assets minus
current liabilities then comes the step
[263]
number four
step number four is to calculate the
[266]
change in the net working capital using
the formula so the formula is working
[272]
capital of current here less working
capital of previous here as simple as
[281]
that now see the snapshot over here of
Colgate's 2016 in 2015 balance sheet
[287]
number the total current asset is
standing at four your four three three
[292]
eight and three six three three zero
five is the total current liabilities
[298]
total current assets minus total current
liabilities let's calculate the working
[304]
capital here so how are how will we will
be calculating so the current asset of
[310]
2016 of vulgate let me just bifurcate
2016 current asset was four three three
[318]
eight current laboratory was standing at
three three zero five so a working
[324]
capital will be current assets minus
current liabilities that is one zero
[328]
three three million now we'll calculate
same for 2015 and we saw the 2015
[334]
numbers that were standing at four three
eight four and three five three four
[340]
this is everything is in terms of
dollars and millions basically you can
[345]
see so is equal to well that's it
now you will have the net to change in
[352]
working capital net change in working
capital will be I'll just merge the
[359]
entire thing I'll say previous your
current here - previous your net change
[365]
in working capital that will give us 183
million dollars that is the cash outflow
[374]
net change in working capital so how
does the analysis go here well change in
[382]
the working capital does not mean actual
change in the value here over here
[387]
it means the changes in the current
assets - the changes in the current
[392]
laboratory so with the change in the
value we will be able to understand why
[396]
the working capital as increase
or degrees let me show you some of the
[400]
number of actions that will be caused in
net change in working capital first
[408]
reason is that if the company does not
allow outstanding credit the account
[413]
receivable will get reduced
okay but sales maybe having a different
[421]
declining effect now the inventive
planning also impacts the changes in
[426]
working capital so an increase in
inventory okay an increase in the
[438]
inventory increases the increases the
usage of cash now third is stretching
[449]
the accounts payable stretching the
accounts payable it impacts the changes
[460]
in the net working capital so if the
growth rate of the company is high then
[470]
it uses cash more for buy inventories
and increasingly the account receivable
[476]
so the cash will be heavily be used
right so basically it is what we call as
[482]
an indicator of the operating cash flow
and it is recorded on the statement of
[489]
the cash flow and the cash flow is one
of the important factor to be considered
[493]
when we value a company because it
indicates whether the short term assets
[497]
are increasing or decreasing with the
respect with respect to the short term
[504]
liabilities with respect to short term
liabilities okay from one year to the
[510]
next year so the conclusion is that if
the net working capital is increasing if
[516]
the net working capital is increasing we
can conclude that the company's
[520]
liquidity is also increasing okay so it
could indicate that the company is able
[525]
to utilize its existing resources in a
better way some companies have negative
[531]
they they have what we call as negative
working capital in some companies are
[536]
positive working capital as we have seen
in some of the examples generally
[541]
companies like Walmart which is which
has to maintain a large number of
[545]
inventory
they usually have negative working
[548]
capital the software company is
the software companies they generally
[555]
tend to have positive working capital
because they do not have to maintain an
[558]
inventory before they can sell the
product so it means it can generate
[562]
revenue without increasing the current
liability so the cash flow can cannot
[566]
increase or decrease with only change in
working capital but if it is not
[570]
sufficient companies efficiently is
greatly reduced efficiency is greatly
[575]
reduced so if if the current assets and
the current liabilities have increased
[583]
by the same amount there would be no
change in working capital second if the
[591]
change is positive then the change in
the current liability has the change in
[596]
D all right the change in the current
liability has increased more than the
[605]
current assets third if the change is
negative it means a change in the
[616]
current assets has increased more than
the current liabilities so well that is
[623]
it if you have loaded enjoyed watching
this video please like comment on this
[628]
video and subscribe to our channel for
all the latest updates again thank you
[632]
everyone for joining the session
Most Recent Videos:
You can go back to the homepage right here: Homepage