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Working Capital and Cash Flow Analysis in Excel

Apr 2, 2008

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This chapter is from the book 

Business Analysis with Microsoft Excel, 3rd Edition

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Summary

In this chapter, you saw how to analyze working capital, learned about its sources and uses, and saw how to move beyond the information in the balance sheet and income statement. Working capital is an important gauge of a company's financial health, and it can be hidden by the accrual basis used by other analyses.

This chapter also described how to analyze the flow of cash into, through, and out of a company as a result of its transactions. Because cash is the most liquid form of working capital, it is an important component of many financial ratios used by investors and potential creditors; you will learn more about these in Chapter 7, "Ratio Analysis." Cash flow analysis is also an important means of understanding the difference between such items as net income and actual receipts.

Furthermore, the ways that a company uses its working capital and, in particular, its cash are a good indicator of how well it manages its assets overall. This highlights and summarizes the investments and disinvestments the company's management makes every day. Highlighted, those choices can give you insight into the way management handles its responsibilities. People who know how to create these analyses stand a much better chance of protecting their investments before management folds the company's tents.

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