Question

Q. Rao Corporation has the following balance sheet. How much net operating working capital does the firm have?

Cash	$   10	Accounts payable	$  20
Short-term investments	30	Accruals	20
Accounts receivable	50	Notes payable	50
Inventory	40	Current liabilities	$  90
Current assets	$130	Long-term debt	60
Net fixed assets	100	Common equity	30
		Retained earnings	50
Total assets	$230	Total liab. & equity	$230

Answer 1

Net operating working capital = Operating Current Assets -  Operating Current Liabilities

Operating Current Assets are the short-term assets used to support the operations of a business. It generally includes cash, accounts receivable, and inventory

Operating Current Assets = cash + accounts receivable + inventory

= Current assets - Short-term investments

= 130 - 30

= 100

Operating Current Liabilities = Accounts payable + Accruals

= 20 + 20

= 40

Net operating working capital = Operating Current Assets -  Operating Current Liabilities

= 100 - 40

= $60