Working Capital


The working capital, also called working capital, is the current assets, which, in a period of twelve months, is always financed. It is of vital importance in finance, the branch of the economy that is responsible for analyzing transactions, involving an asset or capital, that occur between people, companies or the State. It should be noted that, depending on the approach given to the study of current assets, its definition may vary; in one it is seen as the fund fed by permanent financing, while in another it is the surplus of the surplus resources of the company. From this, it can be determined what the regular operation of a company would be like, usually within a short-term period.

Assets are all those resources, goods or rights that a company has, which in the long term can be converted into money. Liquidity, on the other hand, is the ability of these assets to be converted into cash, and it should be mentioned that this depends, to a large extent, on the profitability it has in the market. Current assets are those that, within a set time, usually 12 months, should be converted into money. The circulating capital behaves like the counterpart of the current capital, that is, the non-current capital, since it is not transformed into cash in the 12 months already established.

Mathematically speaking, the circulating capital will always be the same; however, in finance they are given a different interpretation and are applied in different financing areas. According to the approach given according to its non-current capital statement, the working capital, product of the formula: working capital = current assets – current liabilities, represents the solvency margin of a company; the greater the current assets, the lower the insolvency margin of the institution. Other authors prefer to see working capital as the surplus or remnant of permanent resources, which are determined with the formula: working capital= permanent resources-fixed assets; thus, the ability to cover short-term expenses of companies would be known.