(v4070.00) Incremental Working Capital Investment

The Incremental Working Capital Investment (v4070.00) required for operations is defined as the increase in Total Current Assets (v2100) (excluding Marketable Securities (v2017)) minus the Increase in Total Current Liabilities (v2600) (excluding the Current Portion of Long-Term Debt (v2510) and Notes Payable (v2520)).

Incremental Working Capital Investment (v4070.00) excludes the increases in Marketable Securities (v2017), Current Portion of Long-Term Debt (v2510) and Notes Payable (v2520) because those accounts are financing issues and are not part of the cash required for operations.

The Incremental Working Capital Investment (v4070.00) represents the actual investment in receivables, inventory, and so on that is necessary to support sales growth. Because this investment is part of the company's basic production and administrative function, it is included in the calculation of Cash Flow from Operations (v4100). Past year-to-year Balance Sheet data may not provide a good measure of the increase or decrease in funds required for the future. Past figures can be misleading for two reasons:

  1. Year-end figures on the Balance Sheet may not reflect the average or usual needs of the business during that year.

  2. Estimating the cost of increased inventory based on the difference between beginning and ending inventory balances may yield unreliable results.