UK 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
The part of the capital of a business that is not tied up in land, buildings or fixed equipment.
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.
The net working capital formula is calculated by subtracting the current liabilities from the current assets.
Typical current assets that are included in the net working capital calculation are cash, accounts receivable, inventory, and short-term investments.
The gross working capital refers to the assets or the company’s total financial resources.
Whereas, a company’s net working capital is it’s total resources minus it’s financial liabilities.
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This glossary post was last updated: 23rd December 2018.