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The December 31, 2024, balance sheet of Dunstan, Incorporated, showed current assets of \$5,530 and current liabilities of \$2,610. The December 31, 2025, balance sheet showed current assets of \$6,030 and current liabilities of \$3,250. What was the company's 2025 change in net working capital, or NWC?



Note: A negative answer should be indicated by a minus sign. Do not round intermediate calculations and round your answer to the nearest whole number, e.g., 32.

Verified Answer :

  • Identify current assets and liabilities for 2024 and 2025.
  • Compute \(NWC_{2024} = \$5,530 - \$2,610 = \$2,920\).
  • Compute \(NWC_{2025} = \$6,030 - \$3,250 = \$2,780\).
  • Calculate the change: \(\Delta NWC = \$2,780 - \$2,920 = \boxed{-\$140}\).

Explanation

  1. Analyzing the Financial Data

The problem asks for the change in net working capital (NWC) for Dunstan, Incorporated between the years 2024 and 2025. We are given the current assets and current liabilities for both years:

  • For 2024: Current Assets = \(\$5,530\), Current Liabilities = \(\$2,610\).
  • For 2025: Current Assets = \(\$6,030\), Current Liabilities = \(\$3,250\).

Net working capital is defined as the difference between current assets and current liabilities: \(NWC = \text{Current Assets} - \text{Current Liabilities}\). To find the change in NWC, we must first calculate the NWC for each year and then find the difference between those two values.

  1. Calculating the Change in Net Working Capital

We calculate the net working capital for 2024 as follows:
\[NWC_{2024} = \$5,530 - \$2,610 = \$2,920\]
Now, we calculate the net working capital for 2025:
\[NWC_{2025} = \$6,030 - \$3,250 = \$2,780\]
The change in NWC is the difference between the NWC in 2025 and the NWC in 2024:
\[\Delta NWC = NWC_{2025} - NWC_{2024} = \$2,780 - \$2,920 = -\$140\]
The negative sign indicates a decrease in the net working capital from 2024 to 2025.

Examples

Net working capital is a vital measure of a company's short-term financial health and operational efficiency. For instance, if a retail store tracks its NWC annually, it can assess whether it has enough liquidity to cover its upcoming debts. A positive change indicates improved liquidity, while a negative change might prompt management to reconsider their current debt obligations or inventory management practices. Regularly calculating this metric ensures that businesses remain agile and avoid potential cash-flow issues.

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