Title: Working Capital Formula, Examples & More
Headings: Working Capital: Formulas, Misconceptions and Real Examples
Working Capital: Formulas, Misconceptions and Real Examples
Working capital formula and definition
Working capital = Current assets – current liabilities
Current ratio and the quick ratio
Working capital presentation on the cash flow statement
Reconciling working capital on the balance sheet with the cash flow statement
Operating items vs. working capital on the cash flow statement
Key Takeaways
Working capital presentation in the financial statements
Interpreting working capital
The operating cycle
Working capital management
An illustrative example: Noodles & Co
in summary
Working capital management
Working capital in financial modeling
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Footnotes

Content: For example, if all of Noodles & Co’s accrued expenses and payables are due next month, while all the receivables are expected 6 months from now, there would be a liquidity problem at Noodles. They’d need to borrow, sell equipment or even liquidate inventory. But the same negative working capital balance could be telling a completely different tale, namely of healthy and efficient working capital management, where accounts payables, accounts receivable and inventory are carefully managed to ensure that inventory is quickly sold and cash is quickly collected, allowing Noodles & Co to pay invoices as they come due and purchase more inventory without tying up cash and without skipping a beat. Further, Noodles & Co might have an untapped credit facility (revolving credit line) with sufficient borrowing capacity to address an unexpected lag in collection. In fact, here’s how Noodles & Co explains their negative working capital in the same 10Q: Our working capital position benefits from the fact that we generally collect cash from sales to customers the same day, or in the case of credit or debit card transactions, within several days of the related sale, and we typically have up to 30 days to pay our vendors. We believe that expected cash flow from operations, the proceeds received from the private placement transactions and existing borrowing capacity under our credit facility are adequate to fund debt service requirements, operating lease obligations, capital expenditures, the Restaurant Closing Liabilities, the Data Breach Liabilities and working capital obligations for the remainder of fiscal year 2017. In short, the amount of working capital on its own doesn’t tell us much without context. Noodle’s negative working capital balance could be good, bad or something in between. The operating cycle
Cash, accounts receivable, inventories and accounts payable are often discussed together because they represent the moving parts involved in a company’s operating cycle (a fancy term that describes the time it takes, from start to finish, of buying or producing inventory, selling it, and collecting cash for it).