Definition

The Besoin in Working capital (BFR) represents the shift of Trésorerie coming from the current activity of the company (exploitation).

Indeed, the customers can pay in advance or with a time. The suppliers are not always paid at the time of the delivery. In general, the social contributions are paid the 15 of the next month. In short, the requirement in working capital results from the shifts between the withdrawals and cashings from flows related to the line of business.

the " Requirement in Funds for roulement" (BFR) can be also called " fund resource of roulement" when it is negative:

The financing need corresponds to the surplus of the uses (real) of investment of the exercise on the resources (real) of investment of the exercise, except debt with length and medium term.

Calculation

The simplified expression of the BFR is the following one:
BFR = stocks + credits customers - debts suppliers .

In a more general way, one can consider that the BFR is defined as the difference between the credits in exploitation and the liability of exploitation considered in the broad sense:

BFR = stocks + realizable - debts of short term of exploitation .

One can distinguish BFR from exploitation and BFR except exploitation, since certain elements of the preceding equation are not directly related to the exploitation (income tax…).

The analysts also appreciate that one presents the BFR in days of turnover. It is enough for that to net of tax divide the amount found above by the turnover of the company and to multiply by 365 (or 360 following conventions).

Diagrammatic representation of the bearings type BC

Level of the Need for Working capital

In certain activities, the BFR is negative, which means that the activity generates a positive flow of treasury. It is in particular the case for the signs of large distribution; indeed, they pay their suppliers after the delivery (often 90 days), whereas the customers pay the cash.

However, in the majority of the companies, the BFR is positive, which means that the company of treasury must raise funds to fill the negative flow generated by the operating cycle.

Overall, there are 3 cases:

  • the Need for Working capital is positive: in this case, the uses of business activity are higher than the resources of exploitation. The company must thus finance these short-term needs either using its surplus for long-term resources (Working capital), or using complementary financial resources in the short run (banking contests…).

  • the Need for Working capital is null: in this case, the uses of business activity are equal to the resources of exploitation, the company thus does not have a need for exploitation to finance since the circulating liability is enough to finance the current assets.

  • the Need for Working capital is negative: in this case, the uses of business activity are lower than the resources of exploitation, the company thus does not have a need for exploitation to finance since the circulating liability exceeds the financing needs of its credit of exploitation. The company thus does not need to use its surpluses of long-term resources (Working capital) to finance possible short-term needs.

See too

Requirement in Normative Working capital

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