Two different definitions of NWC?

Need some clarity here

The common definition on the internet is current assets - current liabilities, plain and simple. But am I correct that this definition is irrelevant in finance/valuation?

In valuation, we use a modified verison of NWC that only includes cash / marketable securities / receivables for current assets and only payables / short term borrowings for current liabilities. We exclude items like defferred taxes, accrued expenses, unearned revenue, and current portion of LT debt since they aren't true "NWC".

Is that correct? Does anyone know what I'm talking about? I'm a bit hazy and didn't find much help on the internet. Thanks

 

NWC used for valuation (also called Net Operating Working Capital) does NOT include cash or true debt accounts. The most common of accounts for NOWC are: + Accounts Receivable + Inventory + Prepaid Expenses - Accounts Payable - Accrued Expenses - Deferred Revenue

Examples of things not included are current portion of long-term debt, marketable securities, and cash.

 
Best Response

"In valuation, we use a modified verison of NWC that only includes cash / marketable securities / receivables for current assets and only payables / short term borrowings for current liabilities. We exclude items like defferred taxes, accrued expenses, unearned revenue, and current portion of LT debt since they aren't true "NWC"."

This statement is not true. Accrued expenses and deferred revenue are operating items, short term borrowings are not, you didn't mention inventory or prepaid expenses. Try not to play accountant too much. I have been grilled by a company's CPA for trying to "re-class" certain current assets/liabilities in a valuation. Stick to the calculations of WC below:

net working capital (NWC)= current assets - current liabilities Debt-free net working capital (DFWC)= NWC+ current portion of long-term debt/notes payable/capital lease etc. cashless debt-free net working capital (CDFWC) = DFWC - cash and cash equivalents

 

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