Business, Legal & Accounting Glossary
Finance provided to support the short-term assets of the business (stocks and debtors) to the extent that these are not financed by short-term creditors. It is calculated as current assets minus current liabilities.
Working capital (also known as net working capital) is the capital used to finance the day-to-day operations of a company.
It’s included in the balance sheet and is calculated as the difference between current assets and current liabilities.
Working Capital = Current Assets – Current Liabilities
Defined as the difference between current assets and current liabilities (excluding short-term debt). Current assets may or may not include cash and cash equivalents, depending on the company.
The part of the capital of a business that is not tied up in land, buildings or fixed equipment.
Working capital is the excess of current assets less current liabilities.
The figure represents the amount of resources the business has in a form that is readily convertible into cash.
Working Capital is used to hold liquid balances, pay for wages and materials, and to extend credit to consumers.
If you do not put up enough money for Working Capital, you will be forced to incur debt or inordinately prolong accounts payable so that you get into trouble with your suppliers. Not having adequate Working Capital will place your business in an unsustainable cycle of debt.
After you have determined the amount you need for the fixed assets you have to acquire to be able to operate, you have to add to this amount what you need for Working Capital.
To determine Working Capital:
The company will need to budget a certain amount of working capital in order to get the store refurbished.
The CFO’s goal is to keep the level of working capital high enough that the business never has an issue with liquidity.
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This glossary post was last updated: 13th February, 2020 | 9 Views.