The formulas
- Operating working capital = receivables + inventory + prepaids - payables - accruals
- Cash effect = -(ending working capital - starting working capital)
How it works
In the indirect method of the cash flow statement, changes in operating assets and liabilities adjust net income to operating cash flow. An increase in an operating asset uses cash. An increase in an operating liability provides it.
Use this to check the working capital section of a cash flow statement. Items that change for reasons other than operations, such as acquisitions, foreign currency translation, and noncash transactions, should be removed before you compare.
Illustrative figures only. Check the result against your firm's methodology before relying on it.
Common questions
Why is growth in receivables a use of cash?
Revenue was recognized but not collected.
Which accounts are excluded?
Cash, debt, income taxes payable in some presentations, and anything investing or financing.
Does this tie to the cash flow statement?
It should, apart from noncash and acquisition effects.
Formulas on this page are the standard definitions.
Runs in your browser. The figures you type are not sent to CORAA or stored. Check the result against your firm's methodology before relying on it.