Working Capital Calculation

May 19th, 2015
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Aberystwyth University
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Lease payments for premises - Annual rent payment - Electricity, gas and telephone/internet bills - Labour cost payments

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Working capitalThe capital needed to pay for raw materials, day-to-day running costs and credit offered to customers.Working capital (accounting terms)Working capital =current assets - current liabilitiesLiquidityThe ability of a firm to pay its short-term debtsLiquidationWhen a firm ceases trading and its assets are sold for cash. Turning assets into cash may be insisted on by courts if suppliers have not been paid.Working capital cycleThe period of time between spending cash on the production process and receiving cash payments from customersCash flowThe sum of cash payments to a business (inflows) less the sum of cash payments made by it (outflows)InsolventWhen a firm cannot meet its short-term debtsCash inflowsPayments in cash received by a business, such as those from customers (debtors) or from the bank; e.g. receiving a loanDebtorAn individual or an organisation who has bought on credit (or received a loan) from the business andowes the business moneyCreditorAn individual or organisation to whom moneyis owed bythe businessCash outflowsPayments in cash made by a business, such as those to suppliers or workersExamples ofcash outflowsinclude:- Lease payments for premises- Annual rent payment- Electricity, gas and telephone/internet bills- Labour cost payments- Variable cost payments (e.g., raw materials)Cash flow forecastEstimate of the firm's future cash inflows and outflowsNet monthly cash flowEstimated difference bet

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