We explain what working capital is and what its optimal value should be.
As a general rule, you should avoid having a negative working capital. Here are the reasons why.
Working capital is one of the most important magnitudes used in balance sheet analysis. In any school that studies accounting and finance , working capital will be discussed.
Working capital dominican republic email list is also known as circulating capital, working capital or rotation fund.
Companies need financial resources to carry out their activities. These can be obtained from different sources, both external and internal.
The financial resources that a company has available constitute its current assets . These resources must be sufficient to meet its short-term payment commitments, which are reflected in its current liabilities .
Current assets and liabilities are the two magnitudes that are compared to obtain the working capital, which can be positive, negative or equal to zero.
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What is working capital?
Working capital measures a company's ability to have sufficient liquidity to meet its short-term payment commitments and, at the same time, to be able to make investments or acquisitions typical of any commercial activity.
The working capital calculation can be done in two ways:
For the difference between permanent capital and non-current assets.
For the difference between current assets and current liabilities.
Its balance must be positive, since there is a part of the current assets (such as the safety stock or the minimum balance required on hand) that, due to its importance in the production process, must be financed with permanent capital.
Working capital formula
It can be calculated as a difference between magnitudes.
One way to do this is by subtracting non-current assets (NCA) from permanent capital, which is composed of net worth (NE) and non-current liabilities (NCL).
FM = (PN+PNC) – ANC
Net worth is the part of liabilities made up of equity, i.e. capital, reserves, profit and loss and results. It finances the company's activity, but does not entail an obligation to pay third parties.
Non-current liabilities are the part of the liabilities that finance our company in the long term. That is, liabilities with a maturity of more than one year. In principle, their payment does not pose a short-term liquidity problem for the company.
Non-current assets are made up of the assets that make up our tangible, intangible and financial fixed assets.
