# Learning Mathanese: How to Calculate Working Capital

Math. A four-letter word you can say on TV, yet so reviled that people go to great lengths to avoid it, even when they know that doing so puts their financial well-being in peril.

Wait! Don’t click away. Today brings part three in a continuing series that spotlights the major computations found here at AOL DailyFinance. Or, as we’ll call it, a short course in Mathanese — aka the numbers behind investing’s (and life’s) big equations.

Last time, we covered market cap and enterprise value. Today, we move on to the all-important working capital.

Working capital is like a bank account. Companies with more working capital have, well, more capital to work with. They’re stronger than their peers because they have more resources to fund growth.

Berkshire Hathaway (BRK-A)(BRK-B) chairman Warren Buffett knows more than a little about the metric. His teacher, the legendary investor Benjamin Graham, would seek stocks that traded for a discount to their liquidation value on the theory that even distressed businesses would attract buyers at the right price. Working capital is key to knowing liquidation value. (In part, because of its own generous working capital, Berkshire can spend tens of billions on repurchasing shares of its own stock.)

How to figure it? Easy: Working capital is derived from the balance sheet and equals the sum of current assets such as cash and inventory after subtracting current liabilities such as accounts payable and short-term borrowings. Here’s the math:

[Current assets – current liabilities]

And here’s the equation when you plug in the numbers for an industrial manufacturer such as Ford Motor (F), which as you’ll see is almost as cursed with obligations as it is blessed with assets:

[\$122.768 billion – \$98.927 billion] = \$23.841 billion