Working capital

Also known as ‘net current assets’, working capital is the total of a firm’s current, or short term, balance sheet assets minus all current liabilities (often shown as ‘creditors: amounts falling due within one year’). So, with stock of £2m, debtors of £2.5m, short term investments of £1.5m, cash of £1m and short-term creditors of £3m, working capital is £4m (2 + 2.5 + 1.5 + 1 – 3).

Most businesses need working capital in order to trade and expand. Too much, however, can indicate inefficiencies, perhaps arising from overly generous credit terms given to customers, carrying too much stock or a lack of control over suppliers (poor ‘supply-chain management’). Indeed many of the smaller, fastest growing companies that eventually go bust do because they have focused on sales growth at the expense of proper working capital management.

Paul Hodges: house prices could fall 50% in 'Great Unwinding'

Merryn Somerset Webb interviews Paul Hodges about deflation, the global economy's 'Great Unwinding', and how Britain's house prices could halve.


Which investment platform?

When it comes to buying shares and funds, there are several investment platforms and brokers to choose from. They all offer various fee structures to suit individual investing habits.
Find out which one is best for you.


23 January 1967: Milton Keynes founded

The most famous of Britain's garden cities, Milton Keynes in Buckinghamshire, was founded on this day in 1967, along an American-style grid pattern.