How do you predict NWC?

To gain further understanding on how to compute net working capital, the initial step involves summing up all current assets. This includes cash, marketable securities, accounts receivable, inventory, and any other assets that can be converted into cash or used to pay off current liabilities within a year.

Once all current assets have been tallied, the next step in calculating net working capital is to subtract accounts payable. Accounts payable represent the money that a company owes to its suppliers for goods or services received. By deducting these liabilities from the total assets, one can ascertain the net amount available for operations after accounting for short-term debts.

Beyond accounts payable, other current liabilities such as short-term loans, wages payable, and taxes payable should also be subtracted from the total assets. This ensures that all obligations due within a year are considered, providing a clearer picture of the company's liquidity position.

After deducting all current liabilities, the next step is to deduct any additional expenses that may affect the net working capital. These can include operating expenses, interest payments, and other costs incurred in the normal course of business. Subtracting these expenses from the adjusted asset total will yield a more accurate representation of the company's financial health.

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