3.2·7 min read

Working Capital & Roll-Forwards

Each balance connects to the next period through a roll-forward: begin, add the inflows, subtract the outflows, end.

By the end you can

✓Roll forward PP&E and retained earnings
✓Recognize the working-capital accounts that drive cash

In a model, this period's ending balance becomes next period's beginning balance. The pattern that connects them is the roll-forward.

\text{Ending PP\&E} = \text{Beginning PP\&E} + \text{CapEx} - \text{D\&A}

PP&E grows with capital spending and shrinks as assets depreciate.

\text{Ending Retained Earnings} = \text{Beginning} + \text{Net Income} - \text{Dividends}

Working capital is the cash engine

, , and are the everyday balances whose changes move cash. A growing company ties up cash in receivables and ; stretching payables frees it. These changes are exactly what the picks up next.

Check yourself

Beginning PP&E is 1,000, CapEx is 200, and D&A is 150. What is ending PP&E?

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Assets = Liabilities + Equity

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The Indirect Method (Operating Cash)