The net working capital requirement will vary from company to company. And within the company itself it may vary from month to month. It depends on two factors namely, how much earnings a company has and what is the frequency of receiving those earnings. Secondly, what are the expenses that a company has and how frequently these payments have to be settled.

For determining how to calculate working capital for a new investment, the business managers have to make forecasts of the earnings i.e. accounts receivable and inventory as well as the expenses i.e. accounts payable. After the projections have been made, you have to compare the actual earning and expenses with the projections. Next, add the increase in accounts receivable and the increase in inventory and subtract the accounts payable from this amount. The figure you then get will reflect the probable change in working capital which can be used for the new investment.

Change in working capital is also determined through the inflow and outflow of funds. So these two things should also be taken into consideration while calculating the working capital requirements. The mathematical formula for this is:

Working Capital Required = (Increase in accounts receivable + Increase in inventory + Cash inflows i.e. cash in bank, bank loan, other current assets) – (Increase in accounts payable + Cash outflows i.e. prepaid expenses, payment to suppliers, other current liabilities)