In this workout we're being asked to calculate operating working capital in both years Also, to decide whether the change in OWC between the two years represents a cash in or outflow And lastly, to calculate the in or out cashflow We've been provided a balance sheet underneath here and to calculate the operating working capital I'll be looking within the current assets for any operating current assets and within the current liabilities, three operating current liabilities I've set up a little template underneath here. I'll be summing up my operating current assets Summing up my operating current liabilities Take the operating current assets minus the operating current liabilities to get to my operating working capital Let's try and identify the operating current assets first Well looking at our current assets here, we start with cash and cash equivalents and immediately I think to myself, that sounds like a financing item. So I won't be including that one But straight underneath, accounts receivable. That's my customers owing me money, that's definitely an operating item Next up inventories, inventories if I didn't have them, I would have nothing to sell So again, we're gonna have another operating item there And underneath that prepaid expenses So that's where I have paid a bill in advance, I get to enjoy the benefit of that as I've come to use that That is very likely to be operating as well Cool! So we've got three items that we think are gonna be operating working captial or operating current asset items. So I'm gonna put those three into my list And put the three numbers in for each of the years If we sum up each of those columns, we get to operating current assets of 1957.5 and 2107.6. So so far we've got quite a bit of cash tied up in operating current assets Now let's see if we can find any operating current liabilities So to go down the list again, we start with accounts payable (this is where I owe my suppliers) If I didn't have my suppliers, I definitely wouldn't have any operations. That is an operating item Next up, income taxes? Tricky one here, is it financing? No it's not, we pay taxes on our operating profits So that's an operating item Other taxes, I'm gonna use the same criteria. That's going to be an operating item I then look at accrued interest and what do we pay interest on? We tend to pay interest on our debt items That's a financing item, debt is financing. So interest on the debt is also financing And lastly, accrued payroll. Payroll, that's me paying salaries to my staff Probably couldn't deal without them, couldn't have any operations without them So that's going to be an operating item as well So that gives me four items from current liabilities that I want to include One, two, three, four And I'll include all of their figures as well I sum up my operating current liabilities What I now need to do is calculate operating working capital I can see in year 1, that my my operating current assets minus my operating current liabilities is going to come out as a negative And it does, 406.6 If we go forward to year 2, it's going to be negative again and it comes out as 759.8 Wow! So we've definitely got negative operating working capital, that's a great position for this company to be in The operating working capital actually provides funding for the rest of the business Now has that changed between the two years (from year 1 to year 2)? Been a cash inflow or a cash outflow Well we had 406.6 of free funding And the amount of free funding went up, great! To 759.8, if the amount of free funding has gone up then that means that we have had a cash inflow to the business So cash inflow, the difference between those two figures was 353.2 A great position for this company to be in