January 29, 2022

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How to Calculate Access Bank Net Working Capital for 2020 Financial Year

How to Calculate Access Bank Net Working Capital for 2020 Financial Year
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Working capital is an important area of every business. It is required for the daily running of the business. Also, without it, a business will not have the finance required for daily survival. You can calculate working capital from a business financial statement. Here, let’s examine that of Access Bank. One of Nigerian’s top banks.

In summary, working capital (WC) is finance used by an entity to meet day-to-day business expenses. Net-working capital (NWC) can be used interchangeably with WC. However, they may have different meanings. NWC is arrived at after deducting current liabilities from current assets. WC is simply current assets. I have written in detail about them. Read. More so, the formula for it is;

NWC = Current Assets – Current Liabilities

WC is a good measure of the company’s health. A positive WC means that the business can meet daily operational expenses without breaking the bank. However, a negative one reflects that the bank is relying on debts, especially short-term debts. This is called overtrading.

Understanding Working Capital for Banks

For Money Deposit Banks, working capital is a good measure but shouldn’t be relied on completely because of the nature of their business. Banks relied mostly on Capital Adequacy Ratio (CAR). One reason is that banks use depositors’ funds as their major funding source. And depositors fund is a current liability on the balance sheet. This could make liabilities higher than current assets.

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How to compute NWC for Access Bank

Here, I will use the annual report of Access Bank in 2029. You can download a copy. The following steps will be used.

Step 1: Locate the Statement of Financial Position in the annual report.

Step 2: Add up all the Current Assets. This includes cash and cash equivalents, investment under management, non-pledged trading assets, derivatives financial assets.

Step 3: Add up the Current Liabilities. That is deposits from financial institutions, deposits from customers, derivatives financial liabilities, current tax liabilities, and other liabilities.

Step 4: Deduct the current liabilities from the current assets.

How I calculated Net Working Capital for Access Bank in MS Excel

The screenshot below shows my calculation of Access Bank Working Capital in the 2020 financial year. I compare this with 2019. Also, I calculated Net Working Capital for the Group and company separately.

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How to Calculate Access Bank Net Working Capital for 2020 Financial Year

From the screenshot, you will notice that Access bank has negative WC. If the company isn’t a money deposit bank, it would be bad for businesses to own this huge debt. As I already mentioned, banks are more interested in Capital Adequacy Ratio. The main thing is, can the bank pay depositors money when they are in distress and still come out strong?

Conclusion

Working capital is the difference between current assets and liabilities. A positive WC is good for business. As it assures that the business has funds to meet day-to-day operations. A negative WC may affect a business, unless if it has a good shock absorber. That is, it can meet current debts as they fall in place.

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