The income statement of a company summarizes its sales, expenses and profits for a period, which can be a month, quarter or year. The balance sheet summarizes its assets, liabilities and shareholders' equity. For sole proprietorships and partnerships, the statement of owners' equity or owners' capital lists the accumulated capital for each owner, which includes the company's profit or loss minus withdrawals. Working capital is the capital available for operations. It is the difference between current assets and current liabilities.
Get the net income amount from the income statement, and current assets and current liabilities amounts from the balance sheet. Net income is the bottom line on the income statement, derived after subtracting cost of goods sold and various operating expenses from sales. Current assets include cash, accounts receivable and marketable securities. Current liabilities include short-term debt amounts that are due within a year.
Calculate the owners' capital. Add the current period's net income or loss to the owners' capital at the start of the period, and subtract cash withdrawals. For example, if beginning owners' capital was $100,000, net income was $15,000 and withdrawals were $20,000 during the quarter, the owners' capital at the end of the period is $95,000 ($100,000 plus $15,000 minus $20,000). Note that owners' capital is known as retained earnings for corporations with multiple shareholders.
Subtract current liabilities from current assets to calculate the working capital. For example, if your current assets are $50,000 and current liabilities are $35,000, your working capital is $15,000 ($50,000 minus $35,000).
- Photo Credit Stockbyte/Stockbyte/Getty Images
How to Compute Horizontal Analysis of a Balance Sheet
Horizontal analysis, also called "trend analysis," is used to discover trends in the earnings, assets and liabilities of a company over the...
Do I Need to Pay Tax on Withdrawals From a Whole Life Policy?
Whole life insurance is a permanent insurance policy that also offers an investment component, known as the cash value of the policy....