How to Calculate Addition to Net Working Capital
Original post by Ryan Menezes of Demand Media
A company with a current level of net working capital may need further investment to reach its capital goals. It can then use the additional capital for production, expansion or for investment of its own. When the company has accumulated its working capital from common stockholders' investment, you can calculate its current net working capital from individuals' returns and the proportion of capital that their investment added to the firm.
Divide a company's total net income by the returns that it pays an investor. For example, if one investor receives $25 in dividends, and the company made a total net income of $75,000, dividing $75,000 by $25 results in 3,000.
Multiply the capital that the investor added to the company by this value. For example, if the investor put $100 into the company, multiplying $100 by 3,000 produces $300,000 as the company's current level of net working capital.
Subtract the current net working capital from the amount of the capital that the company wants. For example, if the company seeks to accumulate $450,000 of capital, subtracting $300,000 from $450,000 gives $150,000 as the necessary addition to the company's net working capital.
- "Financial and Managerial Accounting"; Carl S. Warren et. al.; 2008
- Jacksonville State University: Dividend Transactions
- "Cornerstones of Financial & Managerial Accounting..."; Jay S. Rich et. al.; 2009
- "Principles of Accounting"; Belverd E. Needles; 2010
About the Author
Ryan Menezes is a professional writer and blogger. He has a Bachelor of Science in journalism from Boston University and has written for the American Civil Liberties Union, the marketing firm InSegment and the project management service Assembla. He is also a member of Mensa and the American Parliamentary Debate Association.
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