The working capital is a concept of financial balance which can be calculated starting from elements of the countable Bilan (more precisely starting from the functional assessment) of a company. There exist two levels of Working capital:

• the Working capital Total Net (FRNG) ,
• the Working capital Financial .

In general when nothing is specified, by “Working capital” (FR), it is necessary to include/understand Working capital Total Net (FRNG).

Let us note that as for the “Goodwills”, the “working capital” is written “funds” with a “S” and not “ working capital ”.

Working capital (Total Net)

Definition

The Working capital is defined like the surplus of stable Capitaux, compared to the long-term employment, used to finance part of the current assets.

Thus, FR corresponds to:

• the part of the stable resources which does not finance the long-term employment.
• the part of the current assets financed by the stable resources.

Calculation

Stockholders' equity + Other equities + reserves + Long-term provisions + financial Debts + Variations of conversion liability + Damping and provision (active immobilized) - Capital subscribes not called - Discounts of the obligations

Durable resources

Assets permanent gross + Deferred charges on several exercises + Variations of conversion credit

Stable jobs

Durable resources - Stable jobs = Working capital total Net

For what is used the working capital?

The working capital is used to finance the Besoin in working capital (BFR). More precisely, FR should be used to finance the stable part of the BFR.

Coarsely, the stable part of the BFR corresponds to the essential elements to start and maintain the operating cycle of the company.

For example, a company must buy (and pay) its raw materials, then to launch the production (and to pay the wages of the workmen…), and it is only after it can sell its production to the customers (and finally to be made pay).
A certain number of expenditure generated by the line of business precede the receipts resulting from the sales. It is because the withdrawals precede the cashings which there exists a financing need.

Moreover, this financing need is renewed unceasingly during the operating cycle. It is stable in time for a constant level of activity. Therefore the stable part of the BFR should be financed by stable resources (FR), under the terms of the Principe of financial balance. On the other hand in period of strong growth the BFR croīt proportionally and must thus be financed by contribution of stable capital. This is why a company with strong and fast growth quickly becomes financially fragile if its BFR is not filled and is not supported concomitantly.

Level of the Working capital

If FR is higher than the 0 then long-term employment are completely financed by stable resources.

If FR is sufficiently important to finance the entirety of the BFR (if FR>BFR), then the company lays out of a Clear Treasury (TN) positive.
Contrary, when the BFR is higher than FR, the company has recourse to “short-term” resources to finance part of the BFR. These “short-term” resources are the passive ones of Treasury.

Thus, it is possible to write the following relations:

FR = BFR + TN
ou
TN = FR - BFR

The treasury is considered here only like one balance, a remainder of resources not used.

Working capital financial

The working capital financial is the difference between the credits at less than one year and the debts at less than one year.

Let us note that a credit (resp. liability) at less than one year is a credit (resp. liability), whose expiry is lower than one year.

Financial FR is used during the evaluation of the liquidity and the solvency of a company.

See too

Internal bonds

• Requirement in working capital

• Treasury
• Liquidity

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