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Working Capital Management

December 28, 2022by Barbara Flynn0

Financial Statements:

           Financial statements are essential to a business because they provide an image of the company’s financial health. Financial statements allow one to determine where the money is going. We analyze financial statements to assess the firm’s financial condition from an investment standpoint (Titman et al., 2018). We also use financial statements to assess employee performance and product price control. Working capitals are the company’s current assets (i.e., cash, marketable securities, accounts receivable, inventory, and prepaid expenses) minus its current liabilities (i.e., short-term debt, accounts payable, accrued liabilities, and deferred revenue) (The Finance Storyteller, 2020). We will gather data from the balance sheet to obtain our company’s working capital. We use the balance sheet to look at the company’s assets, liabilities, and stockholders’ equity as of a particular date (Titman et al., 2018). For example, we look at the balance sheet of Beverage King Inc., a beverage retailer. Their total assets are $320,960, and their current liabilities are $146,789. Therefore, their current working capital is $174,171.

Working Capital’s Role:

A company’s working capital is an indicator of the company’s financial health. Ideally, a company wants to have enough working capital to cover its short-term debts and expenses (Titman et al., 2018). Therefore, any successful business needs to have proper working capital management to manage the company’s finances. Working capital management is the “management of day-to-day operations and decisions related to working capital and short-term financing (Titman et al., 2018). For a company to thrive, it must be able to pay its bills. Proper working capital management ensures the company has the correct cycles to ensure that these needs are met to maximize the company’s return on its investment.

Working Capital Interpretation:

Looking at The Walt Disney Company’s most recent fiscal quarter, the third quarter of 2022, we will calculate their working capital.

The formula for working capital is the company’s current assets minus the company’s current liabilities. During the third quarter, The Walt Disney Company recorded $3,1422,000 in total current assets and $30,704,000.

The Walt Disney Company’s net working capital for the third quarter was $718,000. This figure is low compared to The Walt Disney Company’s liabilities, although it shows that the company can maintain and pay its bills while maintaining positive cash flow. At first interpretation, they would only be able to pay some of their bills if they suffer any long-term damage at their current position.

The Walt Disney Company’s financial liquidity ratio, the current assets divided by the current liabilities, is 1.02. A liquidity ratio of 1 is not likely to raise the eyebrows of any immediate candidates for investors. However, the Walt Disney Company needs to work on raising its ratio.

Working Capital Management Trend:

If we look at the balance sheets collected from The Walt Disney Company for the last six quarters, we can see a trend in the data:


07/02/2022 04/02/2022 01/01/2022 07/03/2021 04/03/2021 01/02/2021
3rd Quarter 2nd Quarter 1st Quarter 3rd Quarter 2nd Quarter 1st Quarter
TL Assets  $  31,422,000  $  31,427,000  $  32,913,000  $  33,966,000  $  32,877,000  $  34,874,000
TL Liab  $  30,704,000  $  29,601,000  $  30,037,000  $  27,413,000  $  26,642,000  $  26,546,000
Work Cap  $        718,000  $    1,826,000  $    2,876,000  $    6,553,000  $    6,235,000  $    8,328,000
Liab Ratio 1.02 1.06 1.10 1.24 1.23 1.31

The liability ratio, as well as their working capital, has continued to trend downward. There could be several factors behind this. The Walt Disney Company has continued to expand its portfolio, investing in different revenue streams with the 2020 global pandemic. During the pandemic, they were forced to shut down their park systems and halt productions on several film productions, causing them to look to other avenues. They have restructured their company’s infrastructure, once only theme parks and cartoons, to four key segments to enable the company to function more efficiently. They also recently purchased Hulu+, which was a considerable investment.


It is always essential to understand your company’s financial position. Where is your money going? How is your company’s liquidity? Whether your company needs funding now or may need funding in the future, knowing where you stand financially is essential to any business.

If you do not understand your financial statements or have never even looked at them, we here at People First Inc. can help.

Sally Houle


The Finance Storyteller. (2020, Jan 10). Working capital management [Video]. YouTube. https://www.youtube.com/watch?v=c5iigcEppZw

Titman, S., Keown, A.J., Martin, J.D. (2018). Financial Management: Principles and Applications. Pearson.


Barbara Flynn

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