Working capital is used in fundamental analysis to determine a company’s financial health and efficiency in the short-term. A company’s working capital is calculated by subtracting its current liabilities from its current assets.
Explaining the Working Capital Formula in Excel
To compare the efficiency and short-term financial health of Facebook Incorporated and Twitter Incorporated, look at the respective companies’ balance sheets. For the period ending Dec. 31, 2014, Facebook Incorporated had total current assets of $13.67 billion and total current liabilities of $1.424 billion. For that same period, Twitter Incorporated had total current assets of $4,255,853,000 and total current liabilities of $393.794 million.
In Excel, right-click on columns A, B and C, and left-click on Column Width. Change the value to 28 for each respective column. Then, click OK. Enter Facebook Incorporated into cell B1 and Twitter Incorporated into cell C1.
Next, enter Total Current Assets into cell A2, Total Current Liabilities into cell A3 and Working Capital into cell A4.
Enter =13670000000 into cell B2 and =1424000000 into cell B3. The working capital of Facebook Incorporated is calculated by entering the formula =B2-B3 into cell B4. Facebook’s resulting working capital is $12.246 billion.
Next, enter =4255853000 into cell C2 and =393794000 into cell C3. Twitter’s working capital is calculated by entering the formula =C2-C3 into cell C4. Twitter’s resulting working capital is $3,862,059,000.
Since the current assets of Facebook Incorporated exceed its current liabilities, it is unlikely that Facebook Incorporated will have trouble paying back its creditors in the short-term. Similarly, Twitter Incorporated is likely to pay back its creditors in the short-term.