The difference between the current assets and current liabilities is known as the net working capital. Change in net working capital is the difference between the net working capital for two given reporting periods. Copy the link given below and paste it in new browser window to get more information on Changes in net working capital:- http://www.transtutors.com/homework-help/corporate-finance/financial-statement-analysis/cash-flows/net-working-capital-change/

1. Changes in net working capital

2. What is working capital?
Working capital is required by the business for its day-
to-day trading operations. It can be calculated as the
current assets minus the current liabilities. It is very
useful for company’s efficiency and short term
finance.

3. Changes in net working capital
Net working capital refers to the difference between current
assets and current liabilities. The difference between the net
working capital for two given reporting periods is called
the change in working capital. Net income can differ from
operating cash flow due to many reasons one of the reason is
changes in working capital, therefore, it is reported in the cash
flow statement.

4. Changes in net working capital
Changes in working capital simply show the net effect on
cash flows of this adding and subtracting from current assets
and current liabilities. What is a negative change in
working capital? Negative change in working capital is when
the company is investing heavily in its current assets, or else
drastically reducing its current liabilities. What is a positive
change in net working capital? A positive change in net
working capital happens when the company is either selling
off current assets or else raising its current liabilities.

5. Statement of changes in net working capital
• Current Assets
• When there is an increase in an item of current assets it
causes a decrease in cash inflow because cash is blocked
in current assets
• When there is a decrease in an item of current assets it
causes an increase in cash inflow because cash is
released from the sale of current assets

6. • Current liabilities
• An increase in an item of current liability causes a
decrease in cash outflow because cash is saved
• A decrease in an item of current liability causes an
increase in cash outflow because of payment of the
liability

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