Let us go ahead and talk about the working capital of a company in this article. I will be talking about the working capital of Coca-Cola. For the fiscal year ending of December 31 in 2017, the Coca-Cola company had current assets which were valued at $36.5 billion. They included cash and cash equivalents, marketable securities, short-term investments, all accounts receivable, all prepaid expenses and all inventory is, and they even included assets which are held for sale.
Coca-Cola also registered all of the current liabilities for the fiscal year ending of December 2017, and it equated to $27.2 billion.
The liabilities of the company consisted of the accrued expenses, all of the accounts payable, all loans and notes payable, current maturities of any long-term debts, accrued income taxes and all liabilities which were held for sale.
Based on the accurate information that I have provided above, the current ratio of Coca-Cola is 1.34.
You have to divide $36.5 billion by $27.2 billion. You end up with 1.34.
Well then, does working capital change? Let us dive deep into this question.
While working capital funds do not exactly expire, the working capital figure does indeed change over time.
That would be because the current liabilities of the company and the current assets of the same company or completely based on a rolling one year period, in other words, a 12 month period.
This exact same working capital figure can actually change every single day, and it would depend on the nature of the debt of the company. A long-term liability like a 10 year loan can suddenly become a current liability in the ninth year when the payment deadline is less than a year away.
Similarly speaking, what was once a very long-term asset, like a real estate or even equipment, can suddenly become a current asset when there is a buyer lined up. The working capital of the company, like the current assets, cannot exactly depreciate in the long-term, fixed assets can be depreciated.
When we are talking about certain working capital is, like inventory and accounts receivable, they may lose value, or they may be even written off sometimes. Still, they will have to follow depreciation rules.
While we know that I cannot lose any value or depreciate over time, working capital can actually be devalued, when some assets have to be marketed. This happens when the price of an asset is below the original cost, and it also happens when they are not salvageable. A spectacular example of this would be inventory.