Other Working Capital refers to current asset and liability items outside of the primary components (cash, receivables, inventory, and payables) that fluctuate as part of day-to-day operations. Examples include:
Prepaid Expenses: Payments made in advance for services or goods to be recognized as expenses over time.
Accrued Liabilities: Expenses incurred but not yet paid (e.g., wages payable, utilities).
Other Current Items: Miscellaneous operational balances such as deferred rent, customer deposits (non-revenue), and short-term provisions.
Why is Other Working Capital Important?
Monitoring Other Working Capital is important because it:
Enhances Cash Flow Analysis: Shows cash tied up in non-core operational items that impact liquidity.
Reveals Timing Differences: Highlights mismatches between expense recognition and cash settlement cycles.
Improves Forecasting: Aids in projecting short-term cash requirements and working capital needs.
How is Other Working Capital Calculated?
Other Working Capital is calculated as the net movement in these items between two periods:
1Other Working Capital = (Ending Prepaids + Ending Accrued Liabilities + Ending Other Current Items) \
2 − (Beginning Prepaids + Beginning Accrued Liabilities + Beginning Other Current Items)
Where positive change denotes a use of cash (increase in assets or decrease in liabilities) and negative change denotes a source of cash.
Seasonality and One-Offs: Certain items may fluctuate seasonally or due to one-time events; normalizing these can clarify trends.
Link to Cash Flow Statement: Changes flow through operating activities in the cash flow statement, reconciling net income to cash generated by operations.