What is the amount of net operating working capital for Rhodes Corporation for t

Question

What is the amount of net operating working capital for Rhodes Corporation for the year 2014?

Rhodes Corporation Income Statements 2015 2014 Sales $27,500 $25,000 Operating costs excluding depreciation $23,400 $21,250 Depreciation and amortization $950 $900 Earnings before interest and taxes $3,150 $2,850 Less interest $300 $250 Pre-tax income $2,850 $2,600 Taxes (40%) $1,140 $1,040 Net income available to common stockholders $1,710 $1,560 Common dividends $550 $500 Rhodes Corporation Balance Sheets 2015 2014 Assets 2015 2014 Cash $1,375 $1,250 Short-term investments $275 $250 Accounts receivable $6,875 $6,250 Inventories $4,125 $3,750 Total current assets $12,650 $11,500 Net plant and equipment $9,625 $8,750 Total assets $22,275 $20,250 Liabilities and Equity Accounts payable $2,750 $2,500 Accruals $1,375 $1,250 Notes payable $960 $500 Total current liabilities $5,085 $4,250 Long-term debt $2,750 $2,500 Total liabilities $7,835 $6,750 Common stock $10,780 $11,000 Retained earnings 3,660 $2,500 Total common equity $14,440 $13,500 Total liabilities and equity $22,275 $20,250

Explanation / Answer

Net Operating Working Capital (NOWC)
= Current Operating Assets
Current Operating Liabilities

In many cases, the following formula can be used to calculate NOWC:

Net Operating Working Capital (NOWC)
= (Cash + Accounts Receivable + Inventories)
(Accounts Payable + Accrued Expenses)

For 2014, NOWC

= (1250+6250+3750) - (2500+1250)

= $ 11250 - $ 3750

= $ 7500

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