(v6190) Incremental Working Capital Investment (W)

The Incremental Working Capital Investment (v4070) required for operations is 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)).

When this investment is expressed as a percentage of incremental or increased Sales (v1030), it is known as “W” (v6190.00), a key Strategic Finance account affecting Shareholder Value (v5070):

Incremental Working Capital Investment (v4070.00)
Sales (Net) (v1030.00) - Sales (Net) (v1030.00) (prior period)

Incremental Working Capital Investment (W) (v6190.00) 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.

Incremental Working Capital Investment (v4070) represents the actual investment in receivables, inventory, and so on 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 inventories based on the difference between the beginning and ending inventories balances may yield unreliable results.