课程: Forecasting Using Financial Statements

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Net working capital and free cash flow

Net working capital and free cash flow

课程: Forecasting Using Financial Statements

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Net working capital and free cash flow

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- [Instructor] Net working capital, or NWC, is the cash that Richards has tied up in day-to-day operations. As the company grows, it'll need more and more cash, that's obvious. For example, you may need to invest a bit more in marketing, or provide more services, maybe set up a website, or you many need to increase your inventory. A number of things may be required that need financing. The NWC is the cash that's dedicated to that part of the business. In its most basic form, it's used to measure the short-term liquidity of the business. It's equivalent to current assets minus current liabilities. We don't use cash in this calculation. An increase in current assets represents an investment of cash which decreases available funds. Analogously, a decrease in current liabilities represents a use of cash, which also decreases available funds. Decreases in current assets and increases in current liabilities increase available funds. Let's look at the equation again. I'll go ahead and finish…

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