Working capital: our complete guide
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In summary: Working capital (WC) measures a company's ability to cover its long-term financial needs ;
It is usually calculated by subtracting fixed assets from the company's stable resources ;
A positive FR shows that the company has liquidity for its current operations and development;
It is essential to manage it well to avoid possible financial difficulties.
What is working capital? Definition
Working capital (WC), also known as Net Working Capital (NTWC), is the financial reserve available to the company after covering its short-term commitments. In other words, it corresponds to the difference between the company's stable resources (equity, long-term loans) and its sustainable investments (fixed assets). A positive working capital is a sign that the company has enough resources to finance its operations and development.
Composition of working capital
Working capital is calculated by subtracting short-term balance sheet assets (trade payables, trade receivables, etc.) from long-term liabilities. A positive working capital indicates that the company has enough resources to cover its short-term commitments.
1. Stable resources
Stable resources (or permanent capital) include all sources of long-term financing that allow a company to finance its investments and maintain a certain financial stability. They include.
