Definition for : Working capital

The net balance of operating uses and sources of funds is called the working capital. If uses of funds exceed sources of funds, the balance is positive and Working capital needs to be financed. This is the most frequent case. If negative, it represents a source of funds generated by the Business cycle. It is described as "working capital" because the figure reflects the cash required to cover financing shortfalls arising from day-to-day operations. Working capital is totally independent of the methods used to Value Fixed assets, Depreciation, Amortisation and Impairment losses on Fixed assets. However, it is influenced by: Inventory valuation methods; Deferred income and expense (over one or more years); the company's provisioning policy for Current assets and Operating liabilities and Expenses. Working capital can be also called Working capital needs, Working capital requirements, and requirements for working capital.

(See Chapters Chapter 4 Capital employed and invested capital, Chapter 11 Working capital and capital expenditures and Chapter 12 Financing of the Vernimmen)

To know more about it, look at what we have already written on this subject