Why is "cash" sometimes included and at other times excluded from the
Working Capital calculation?  

And what is the difference between Net Working Capital and Working Capital?

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Request for Question Clarification by omnivorous-ga on 12 Jan 2005 20:54 PST

Twils -- 

Please explain, as I've never seen "cash" excluded from WC.  Ever.

Best regards,

Omnivorous-GA

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Clarification of Question by twils-ga on 13 Jan 2005 08:40 PST

I was researching definitions on the web and found:

Working capital:  Defined as the difference between current assets and
current liabilities (excluding short-term debt). Current assets may or
may not include cash and cash equivalents, depending on the company.

Twils --

Well now I can?t say ?never?!  I?m not sure if this is your source but
here?s one page that defines working capital precisely that way:
Globe Investor
?How to Read a Balance Sheet?
http://gold.globeinvestor.com/public/help/flat/help_financials_report_balance_sheet.html

What they mean here is that working capital might show a cash balance
? or possibly none.  Small companies might retain no cash.  In fact
having worked in corporate finance, we would try to put as much cash
into short-term investments as possible.  This includes even overnight
deposits into marketable securities, something not generally available
to individual investors.

You see ? higher on this page ? that Current Assets = Cash (even if
zero) + Accounts Receivable (net of bad debt allowance) + Inventory +
Marketable Securities + Other (which is usually Prepaid Expenses).

Here?s another excellent definition from Investopedia:
?Appearing on a company's balance sheet, it represents cash, accounts
receivable, inventory, marketable securities, prepaid expenses, and
other assets that can be converted to cash within one year.?

Investopedia.com
?Current Assets?
http://www.investopedia.com/terms/c/currentassets.asp

And since you?re probably doing finance work, I?d also recommend ?How
to Read a Financial Report,? first published in 1973, because it?s
both complete and succinct.  I?ve been through 3 copies in 30 years of
business work and continually refer to it.

The online file (5.1M) is available here as an Acrobat (PDF) file:
Merrill Lynch
http://philanthropy.ml.com/ipo/resources/

The Merrill Lynch guide says that ?net working capital or net current
assets, sometimes called working capital? is Current Assets minus
Current Liabilities.?  So, they?re synonymous.

Best regards,

Omnivorous-GA

The reference to the Merrill Lynch materials was very helpful as well.