January 29, 2022

Accounting + Finance Blog

# Cadbury Working Capital Calculation for 2020 Accounting Year

Cadbury has strong working capital management. For the 2020 accounting year and compared to 2019 YoY, the company holds a strong WC. A detailed analysis shows that WC or net WC was strengthened as a result of borrowings in the short term in 2020. In this article, I will take you through how I arrived at Cadbury WC.

### How to Calculate Cadbury Working Capital

First of all, you need to understand what working capital is all about. In summary, it is the fund business needs to meet daily operations. Next, the formula for WC is simply current assets less current liabilities. To calculate Cadbury WC all you need is to get the total for current assets (CA) and current liabilities (CL). Then subtract CL from CA. That’s all!

The value you get can either be positive or negative. If it is negative, it means the company is struggling to meet day-to-day expenses. But a positive one denotes that it can meet everyday needs. However, working capital does not tell you all you should know.

A company may have negative working capital and could meet daily operational needs. This is true if the company has borrowed funds. As long as it can service the debt, the company can remain in business.

### Computing and Application of Cadbury Net Working Capital

Net working capital is the same as working capital. So, I am using the terms interchangeably. After picking out each line item for current assets and liabilities from Cadbury’s statement of financial position. Next, subtract the CL from the CA, that is, CA – CL. This is summarized as (20,383,861 – 14,474,694) for 2020 and (15,174,042 – 9,901,393) for 2019.

From the screenshot above, WC for Cadbury in 2020 and 2019 is 5,909,167
and 5,272,649 respectively. Both positive! There was a growth in the working capital by 10.8 percent. The increase in the growth was the introduction of short-term borrowings added to the current liabilities in 2020.

The effect was the increased cash and cash equivalents balances and inventories. The cash and cash equivalents can settle trade and trade payables on the spot. Also, it can settle borrowings more than twice for the year 2020.

### Conclusion

Cadbury’s statement of financial position was used to extract the current assets and liabilities used to calculate the net working capital. From the computation, WC was positive for the 2020 and 2019 accounting years. This implies that the company can meet its day-to-day obligations.

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