Advertisement

Working capital

Also known as 'net current assets', working capital is the total of a firm's current, or short term, balance sheet assets minus all current liabilities.

Also known as 'net current assets', working capital is the total of a firm's current, or short term, balance sheet assets minus all current liabilities (often shown as 'creditors: amounts falling due within one year'). So, with stock of £2m, debtors of £2.5m, short term investments of £1.5m, cash of £1m and short-term creditors of £3m, working capital is £4m (2 + 2.5 + 1.5 + 1- 3).

Advertisement - Article continues below

Most businesses need working capital in order to trade and expand. Too much, however, can indicate inefficiencies, perhaps arising from overly generous credit terms given to customers, carrying too much stock or a lack of control over suppliers (poor 'supply-chain management'). Indeed many of the smaller, fastest growing companies that eventually go bust do because they have focused on sales growth at the expense of proper working capital management.

Advertisement
Advertisement

Recommended

Visit/glossary/bonds
Glossary

Bonds

A bond is a type of IOU issued by a government, local authority or company to raise money.
19 May 2020
Visit/spending-it/glossary/601300/quantitative-investing
Glossary

Quantitative investing

Quantitative investing uses sophisticated computer-based mathematical models to identify and carry out trades.
8 May 2020
Visit/glossary/quantitative-easing-qe
Glossary

Quantitative easing (QE)

Quantitative easing (QE) involves electronically expanding a central bank's balance sheet.
8 May 2020
Visit/glossary/600702/emerging-markets
Glossary

Emerging markets

An emerging market is an economy that is becoming wealthier and more advanced, but is not yet classed as "developed".
24 Jan 2020

Most Popular

Visit/economy/global-economy/601420/james-ferguson-the-virus-the-lockdown-and-what-comes-next
Global Economy

The MoneyWeek Podcast: James Ferguson on the virus, the lockdown, and what comes next

Merryn talks to MoneyWeek regular James Ferguson of Macrostrategy Partnership about what's happened so far with the virus; whether the lockdown was th…
28 May 2020
Visit/economy/uk-economy/601427/covid-bounce-back-loans-and-inflation
UK Economy

What bounce back loans can tell us about how we’ll pay for all this

The government will guarantee emergency "bounce back loans" for small businesses hit by Covid-19. Inevitably, many businesses will default. And there'…
1 Jun 2020
Visit/investments/stockmarkets/601423/as-full-lockdown-ends-what-are-the-risks-for-investors
Stockmarkets

As full lockdown ends, what are the risks for investors?

In the UK and elsewhere, people are gradually being let off the leash as the lockdown begins to end. John Stepek looks at what risks remain for invest…
29 May 2020