Total Net Operating Capital

Total net operating capital represents all the current and non-currents assets used by a business in its operations. It includes inventories, accounts receivables, fixed assets, etc.

Total net operating capital is an important input in calculation of free cash flow. Free cash flow equals net operating profit after taxes minus change in total net operating capital over the period.

Formula

Total Net Operating Capital = Net Operating Working Capital + Non-current Operating Assets

Net Operating Working Capital = Operating Current Assets − Operating Current Liabilities

Example

Calculate total net operating capital for Best Buy Inc. (NYSE: BBY) using the following balance sheets. All amounts are in USD in million.

02-Feb-1203-Mar-12
Current Assets
Cash and cash equivalents1,8261,199
Receivables2,7042,288
Merchandise inventories6,5715,731
Other current assets9461,079
Total current assets12,04710,297
Net property and equipment3,2703,471
Goodwill5281,335
Trade names, Net131130
Customer Relationships, Net203229
Equity and Other Investments86140
Other Assets522403
Total Assets16,78716,005
 
Accounts payable6,9515,364
Unredeemed gift card liabilities428456
Accrued compensation and related expenses520539
Accrued liabilities1,6391,685
Accrued income taxes129288
Short-term debt596480
Current portion of long-term debt54743
Total current liabilities10,8108,855

Solution

02-Feb-1203-Mar-12
Cash and cash equivalents1,8261,199
Receivables2,7042,288
Merchandise inventories6,5715,731
Operating current assets (A)11,1019,218
Accounts payable6,9515,364
Unredeemed gift card liabilities428456
Accrued compensation and related expenses520539
Accrued liabilities1,6391,685
Accrued income taxes129288
Operating current liabilities (B)9,6678,332
Net operating working capital (C=A-B)1,434886
Net property and equipment3,2703,471
Trade names, Net131130
Total operating assets (D)3,4013,601
Total net operating capital (C+D)13,06811,933

Written by Obaidullah Jan