What are the components of working capital

Working capital

The Working capital, in German often as Working capital called, is a Balance sheet ratio, which indicates how strong the financial strength of a company is. By definition, working capital is that Current assets minus the short term liabilities. This is used to control the key figure Working capital management.

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Working capital definition

The working capital is calculated from the current assets minus the short-term liabilities (Working capital = current assets - short-term liabilities). A positive number means that a company's current assets cover its current liabilities.

The Target value of Working capital is, like the target value of the Net working capital (Net working capital),> 0 by the liquidity of the company. On the other hand there is one negative value (<0) before the current assets are not sufficient to cover the short-term liabilities. A negative value violates the golden rule of accounting and brings Liquidity difficulties and a difficult ability to act with itself.

The Balance sheet ratio working capital, which originally comes from American accounting, is thus a measure of the financing, Solvency and credit-worthiness of a business.

Working capital management

The working capital should therefore if possible positive be. But not too big either. Because a value that is too high means that Current assets are strongly tied up is. It will Lessefficient used. The exact value that the key figure should assume must always also take into account the respective Branch and the Business model to be decided.

To optimization the financial supply chain can do the so-called Working capital management can be used. With the help of this, current assets and delivery liabilities Taxesin order to optimize the liquidity of a company. Working capital management aims to achieve the Capital commitment to to reduce and thus capital more efficient to use.

Working capital ratio 1 - example

Let's calculate the for example Working capital ratio. The Current assets of our company is 200.000€, the short term liabilities be 125.000€. If we put these values ​​in the formula, we get one Working capital ratio 1 of 160%. The Target value of the WCR (1) lies by greater than 100%. So is ours calculated WCR (1)positive to rate.


Working capital ratio 2 - WCR (2):

At the Working capital ratio 2 will that Working capital by the short term current assets divided. This determines how high the proportion of current assets is that is financed over the long term. A value of approx. 30% is mostly called optimal designated.

Target value WCR (2): >30%

Working capital ratio 2 - example

Let's also look at a calculation of the working capital ratio 2 using a specific example: That Working capital of our company is 75.000€, the short term current assets be 200.000€. If we put these values ​​in the formula, we get one Working capital ratio 2 of 37,5%. The Target value of the WCR (2) lies by greater than 30%. So is ours too calculated WCR (2)positive to rate.