The mean and the calculation of a positive Working Capital

WC represents the funds available after we have financed the long term assets, to work in the operating cycle of the company.

WC is not going to change every day (if WC is computed as the difference between

Current assets and Current liabilites, it gives the impression that WC is affected by daily transactions).

WC says : how much I bring to the operating cycle ?

WC is dependent only upon :

• the strategy of the firm
• with respect to its long term decisions.

WC = Permanent Capital - Net Fixed Assets

Example :

Click here to see the source of data

Starworld Group	2021	2022	2023
	End of Year
Long-Term Debt	1 050	1 100	1 050
Common Stock	900	1 100	1 100
Retained Earnings	300	405	550
Total Long-Term financing	2250	2605	2700
- Net Fixed Asset	- 2 104	- 2 469	- 2 639
Working Capital (*)	+ 146	+ 136	+ 61

(*) funds available to work in the operating cycle of the company

 

Sources :

Understranding Financial Statements, 1999, Marc Bertonèche, Ph. D. in Finance from the Northwestern University, Professor at the Bordeaux University and at Sciences-PO Paris, Visiting Professor at Harvard Business School and Oxford University.

© ECOFINE.COM, Bernard Jaquier, Professor Emeritus & Dr Honoris Causa, Switzerland, 2024