Stated simply, Working Capital = Current Assets - Current Liabilities. This equation helps a company (and its financing sources) understand whether it has enough short term cash inflows to cover its short term cash outflows, also referred to as liquidity. But it’s not as simple as that. And, because it is the elemental center of cash flow, which in turn is the lifeblood of any business, it deserves much attention. Understanding the various parts of working capital will allow you to develop a plan for taming your working capital and, instead, have it work for you. In this webinar you will learn what parts of the balance sheet make up working capital and what actions cause the most problems with cash flow. It also covers best practices for managing working capital that will allow you to avoid working capital issues that can negatively impact cash flow, tax acceleration and make financing difficult to find. To listen to this webinar on-demand, go to: https://www.financialpoise.com/financial-poise-webinars/mastering-the-concept-of-working-capital-2020/

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Practical and entertaining education for
attorneys, accountants, business owners and
executives, and investors.

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Thank You To Our Sponsor

5. Disclaimer
The material in this webinar is for informational purposes only. It should not be considered
legal, financial, or other professional advice. You should consult with an attorney or other
appropriate professional to determine what may be best for your individual needs. While
Financial Poise™ takes reasonable steps to ensure that information it publishes is accurate,
Financial Poise™ makes no guaranty in this regard.
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6. Meet the Faculty
MODERATOR:
Chris Cahill - L&G Law Group LLP
PANELISTS:
John Levitske - Ankura Consulting Group, LLC
Michael Schwarzmann - Independent CRO and Restructuring Advisor
Ken Yager - Newpoint Advisors Corporation
Kim Lorenz - Lorenz Sound LLC
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7. About This Webinar - Where Did All My Profits Go?
Mastering the Concept of Working Capital
Stated simply, Working Capital = Current Assets - Current Liabilities. This equation helps a
company (and its financing sources) understand whether it has enough short term cash
inflows to cover its short term cash outflows, also referred to as liquidity. But it’s not as simple
as that. Working capital is the center of cash flow, which is the lifeblood of any
business. Understanding the various parts of working capital will better enable you to deploy
it for your business. In this webinar you will learn what parts of the balance sheet make up
working capital and what actions cause the most problems with cash flow. We also look at
best practices for managing working capital and avoiding diminished cash flow, accelerated
taxation, and lessened access to financing.
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8. About This Series
MBA Boot Camp 2020
“If you don’t know your numbers, you don’t know your business.” This common refrain
applies equally to attorneys and other business consultants. This webinar series is designed
for you if you are a startup founder, business owner, executive, investor, attorney, or
consultant who, though not a finance or accounting professional, and you find yourself
needing a greater understanding of finance and accounting. This series will not make you an
expert but it will make more cogent and productive your conversations with experts. We
proceed through review of concepts illustrated by examples, anecdotes, and case studies.
Each Financial Poise Webinar is delivered in Plain English, understandable to investors, business owners, and
executives without much background in these areas, yet is of primary value to attorneys, accountants, and other
seasoned professionals. Each episode brings you into engaging, sometimes humorous, conversations designed to
entertain as it teaches. Each episode in the series is designed to be viewed independently of the other episodes so that
participants will enhance their knowledge of this area whether they attend one, some, or all episodes.
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9. Episodes in this Series
#1: EBITDA and Other Scary Words
Premiere date: 1/23/20
#2: How to Read a Balance Sheet – And Why You Care!
Premiere date: 2/20/20
#3: The KPI- Cash Flow Modeling and Projections
Premiere date: 3/19/20
#4: Where Did All My Profits Go? Mastering the Concept of Working Capital
Premiere date: 4/16/20
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10. Episode #4
Where Did All My Profits Go? Mastering the Concept of
Working Capital
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11. Concepts Covered in Past Episodes of this Series
• EBITDA & Other Scary Words
• Balance Sheet Understanding & Analysis
• Key Performance Indicators (“KPI”)

12. Introduction to Working Capital
• What is Working Capital?
 Working Capital = Total Current Assets - Total Current Liabilities
 Positive working capital implies that a company is able to pay off its short-term
liabilities
 Negative working capital implies that a company is unable to meet short-term
liabilities with current assets
 Sometimes also referred to as “Circulating Capital” or “Short Term Capital”

13. Working Capital Vs. Fixed Capital
• Fixed Capital = required for establishing a business
• Working Capital = required to use a business’s fixed assets

14. What are Current Assets?
• Cash and other assets that can be converted into cash easily, or within one year or
accounting period
• Examples:
 Cash
 Receivables
 Inventory
 Marketable securities

15. What are Current Liabilities?
• Obligations requiring cash outflows due within one year or accounting period
• Examples:
 Accounts payable
 Accrued expenses such as salary & wages and taxes
 Interest and debt due within one year
 Some warranty liability
o If a company offers a multi-year warranty, the bulk of the warranty liability
would probably be a long-term liability
 Unearned revenues

16. The Importance of Working Capital
• Maintaining Liquidity
 Understanding Working Capital is key to preserving company’s liquidity
• Lender & Investor relations
 Working Capital is used by current or potential lenders & investors to measure
company’s strength and creditworthiness

17. Working Capital and the Operating Cycle
• A company’s operating cycle is understood as the time it takes to convert raw
materials or inventory into cash
• Working Capital is directly affected by company’s operating cycle

18. Types of Working Capital

19. Gross Working Capital
• A broad measurement
• The sum of all current assets (assets that are convertible to cash within a year or
less)
• It helps in determining return on investment in working capital and in providing the
correct amount of working capital at the right time

20. Net Working Capital
• The sum of all current assets minus the sum of all current liabilities
• Helpful when tracked on a trend line to show gradual improvement or decline

21. Net Working Capital - Potential Pitfalls
• Anomalies
 Isolated measurements may reflect anomalies in working capital which obscure
operations
o e.g., net working capital measured at a point in which a large, one-time
account payable is unpaid may creating the appearance of smaller net
working capital

22. Net Working Capital - Potential Pitfalls
• Lines of Credit
 Despite having negative net working capital, the company may still have line of
credit capable of covering short-term funding shortfalls
 A more nuanced view may come from plotting net working capital against the
remaining available balance on the line of credit
 If the line of credit is nearly used up, liquidity problems are more likely

23. Net Working Capital - Potential Pitfalls
• Liquidity
 Current assets are not necessarily very liquid
 May be unavailable to pay down short-term liabilities.
o e.g., inventory may be quickly convertible to cash only at steep discount;
accounts receivable may not be collectible in the short term

24. Types of Working Capital - Basis of Time
• Permanent/Fixed Working Capital
 Regular Working Capital
 Reserve Working Capital
• Temporary/Variable Working Capital
 Seasonal Working Capital
 Special Working Capital

25. Permanent/Fixed Working Capital
• Minimum sufficient working capital regardless of fluctuation in business activity
• “Permanent” is a misnomer
 Permanent/Fixed Working Capital is not fixed forever
 Permanent/Fixed Working Capital is measured annually and influenced by
company’s growth or contraction over a given year
• Regardless, Permanent/Fixed Working Capital helps a company when make
decisions relating to the financing mix needed to cover working capital gaps
• Permanent/Fixed Working Capital can be financed with long term sources of
funding, such as equity, debenture, and long-term loans
 Long-term sources of financing are usually cheaper than short term sources

26. Types of Permanent/Fixed Working Capital
• Regular Working Capital: permanent working capital that is required in the
company’s ordinary operations for working capital cycle to flow smoothly
• Reserve Working Capital: the working capital cushion the company must maintain
above regular working capital for contingencies that may arise due to unexpectedly

27. Temporary/Variable Working Capital
• The difference between Net Working Capital and Permanent Working Capital
• Stated another way: the temporary fluctuation of Net Working Capital over and
above Permanent Working Capital, based on additional Working Capital
requirements arising from demand for product during a specific period or at a
specific time

28. Types of Temporary/Variable Working Capital
• Seasonal Working Capital
 Fluctuation in Net Working Capital caused by effect of season
o Examples: agricultural products, school or sports uniforms, audit deadlines,
local festivals
• Special Working Capital
 Fluctuation in Net Working Capital caused by special unforeseen event
o Examples: extreme weather conditions (extreme heat or cold), floods,
famine, sudden change in government policy, pandemic

29. Why Classify Temporary/Variable Working Capital?
• Temporary Working Capital is preferably financed on a short-term basis
• Though long-term financing is less expensive, short term financing may better serve
as Temporary Working Capital because long term financing may not be easily
redeemed
• Short term financing has time flexibility, and can be used and repaid when a
purpose is served
• Example: cash credit limit is extended by lender. Interest accrues on amount used
for the period of use only. Idle cash can pay off outstanding short term financing and
the company can save on interest costs over the long term

30. Forecasting
• Companies carefully measure relevant Working Capital history in order to project
accurately future Working Capital needs and determine potential financing needs
• A correctly measured Working Capital history helps a company forecast its growth
• A company better understands its working capital trends by analyzing:
 Days Sales Outstanding as a measure of how many days, on average,
Accounts Receivable are paid
 Inventory Turns as a measure of how quickly, on average, Inventory is sold
 Days Payables Outstanding as a measure of how many days, on average,
Accounts Payable are paid

31. Working Capital Management Policies
• Companies may employ specific policies governing Working Capital Management to
maintain satisfactory levels of Working Capital
• Considerations:
 Profitability, Risk, & Liquidity
 Composition & Level of Current Assets
 Composition & Level of Current Liabilities
 Industry

32. How Payment Terms Can Affect Working Capital
• Positive impacts on working capital
 Shorter customer terms
 Longer vendor terms
 Just-in-time vendor deliveries
 Low minimum vendor order quantities
• Negative impacts on working capital
 Longer customer terms
 Shorter vendor terms
 Long vendor lead times
 High minimum vendor order quantities

33. About the Faculty
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34. About The Faculty
Chris Cahill - ccahill@lgcounsel.com
Mr. Cahill is Head of the Bankruptcy and Restructuring Practice Group at L&G Law Group
LLP, in Chicago, Illinois. He guides secured lenders, creditors, debtors, creditors’
committees, potential purchasers and others through bankruptcy cases, out-of-court
workouts, assignments for the benefit of creditors, and receiverships. Mr. Cahill has
substantial mega-case experience representing very large debtors, and counsels and litigates
on behalf of manufacturers and secured lenders in large and middle-market cases.
Mr. Cahill also publishes frequently and speaks regularly on commercial insolvency
issues. He is an executive editor of Commercial Bankruptcy Litigation, 2d Edition (Jonathan
P. Friedland, Elizabeth Vandesteeg & Christopher M. Cahill eds., 2020) and is the host of
Financial Poise Radio, a periodic podcast for investors and other curious persons,
on www.financialpoise.com.
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35. About The Faculty
John Levitske - John.Levitske@ankura.com
John Levitske is a Senior Managing Director at Ankura, focused on business valuation and complex financial
disputes. He has served as a senior advisor to companies, owners, executives, and legal counsel in business
disputes, shareholder disputes, and M&A transactions regarding issues of valuation, finance, damages, and
accounting. John is based in Chicago. With more than two decades of Big Four public accounting and
international consulting experience, John is seasoned in business valuation, financial analysis, economic
damage quantification, forensic accounting, retrospective solvency analysis, and post-merger & acquisition
accounting calculations. He handles appraisals of healthy and distressed companies for buyouts of shareholders
and creditors, transaction planning, estate and gift taxation, financial accounting, bankruptcy proceedings, and
litigation disputes. John has provided consulting and expert witness testimony services and has served as a
neutral party in arbitration and mediation. He has testified as an expert witness in the US and Europe in
depositions, hearings, bench and jury court trials, and domestic and international arbitration (ICC, SCC, AAA,
JAMS, FINRA, and ad hoc arbitrations) and has served as a neutral arbitrator. In addition, he has rendered
binding decisions on disputed matters.
To read more, go to https://www.financialpoise.com/financialpoisewebinars/faculty/john-levitske/.
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36. About The Faculty
Michael Schwarzmann – michaelschwarzmann@yahoo.com
Michael Schwarzmann has over 20 years’ experience helping identify opportunities to create value for his clients.
I have extensive experience working with established companies when they encounter financial difficulties by
assisting them in developing solutions to address short term cash needs and longer term profitability. My
process includes helping to identify cost savings and value capture scenarios by analyzing historical financial
performance along with current operations and projecting optimizing strategies. Utilizing weekly and monthly
cash flow statements, budgets, and forecasts, I utilize a focused, data driven approach to identifying
opportunities to increase company profitability. Through a broad review of financial, operational and strategic
performance, I help guide companies to increased profitability. Working across the organization, vertically and
horizontally, uncovers additional solutions and generates greater buy-in of the goals, objectives and action plan,
all of which are critical to maximize the impact of proposed changes. I utilize my legal knowledge to seamlessly
work with counsel to identify and address legal issues in a more cost effective manner.
I have guided the development and evaluation of business plans and formulated successful strategies to
preserve or improve asset values. I am a consensus builder. Industry experience includes: health care,
manufacturing, agricultural, construction, restaurants and franchising, energy and travel.
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37. About The Faculty
Ken Yager – KYager@newpointadvisors.us
Ken has 25 years of executive leadership experience in stakeholder communication. Mr. Yager regularly takes
on profit and loss and risk-management responsibility for cash-constrained companies in growth, leveraged-
buyout and turnaround situations. He also has successfully worked on implementing dozens of initiatives
involving, operations and project management, team building, marketing, and sales and joint-venture
management. He is a fierce advocate for capital preservation and saving jobs. Ken has worked with clients in a
variety of industries in over 100 engagements. Prior to Newpoint Advisors, Mr. Yager was a Principal at
MorrisAnderson, a national turnaround management firm focused on assisting companies deal with severe
liquidity issues and insolvency. Mr. Yager previously held positions at Newpoint Ventures, a company dedicated
to revitalizing middle-market companies through new management and the introduction of low-cost employee
leveraging tools; Equity Sponsor Business Development at Bank of America; The Assurance practice of Coopers
& Lybrand and the Capital Markets Division of Salomon Brothers. Ken earned a Bachelor’s degree in
Management with majors in Finance and Accounting from Tulane University, A.B. Freeman School of Business,
and received a Master of Management degree from J.L. Kellogg Graduate School of Management. Ken is a
member of the Chicago/Midwest chapter of the Turnaround Management Association (TMA) and was on the
International Board as the Vice President of Education and chairs the Education Oversight Committee. Member
of American Bankruptcy Institute.
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38. About The Faculty
Kim Lorenz – kimsound@msn.com
After successfully starting and running two corporations for over 20 years, then selling both to Fortune
500 firms, Kim joined World Vision as a volunteer to initiate global collaborations between Rotary and
World Vision. His focus has been on successfully implementing Humanitarian and development work with
this global NGO leader World Vision. The work focuses on large Water, Sanitation and Hygiene projects
(WASH) as well as Economic Development work alongside Rotary Clubs and The Rotary Foundation
doing this work where needed most in developing countries.
To date some $20 million in Water, Sanitation and Hygiene as well as Micro Finance/Economic
Development projects have been completed in these collaborations.
Globally, World Vision has 47,000 'local' staff in close to 100 countries carrying out over $2 billion annually
in humanitarian relief and development work.
Kim has a new book about to be published titled Tireless, Key Principles that Drive Success Beyond
Business School.
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39. Questions or Comments?
If you have any questions about this webinar that you did not get to ask during the live
premiere, or if you are watching this webinar On Demand, please do not hesitate to email us
at info@financialpoise.com with any questions or comments you may have. Please include
the name of the webinar in your email and we will do our best to provide a timely response.
IMPORTANT NOTE: The material in this presentation is for general educational purposes
only. It has been prepared primarily for attorneys and accountants for use in the pursuit of
their continuing legal education and continuing professional education.
39

40. About Financial Poise
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