Working Capital Balance Sheet
Working capital is an indicator of a business’ financial
standing in the short term and its operational efficiency. It is
the available capital that an organisation can readily use in
its day-to-day operations.
The lack of optimum working capital hinders the supply chain
management of a business and signifies a lack of resources.
Investors use the working capital balance sheet as a yardstick
to gauge the monetary position and liquidity of a company. It
is, therefore, vital for businesses to maintain sufficient
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growth and expansion of businesses by way of meeting
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How To Calculate Working Capital Balance Sheets?
Working capital consists of two components – a) current
assets and b) current liabilities. Current assets comprise those
that a business can sell, consume, or exhaust within a financial
year. On the other hand, current liabilities include those that
a business settles in cash, within its financial year.
The mathematical formula to calculate working capital is -
Working Capital = Current Assets – Current
The following example elaborates this concept -
A company has Rs. 5,00,000 cash in hand. Another Rs. 2,00,000
is outstanding and owed to the company as account receivables.
It has Rs. 3,00,000 in inventory. So, its current assets stand
at Rs. 10,00,000.
The company owes Rs. 2,00,000 in account payables and Rs.
3,00,000 as short-term debt. It also has accrued liabilities
worth Rs. 1,00,000. Its current liabilities, therefore, stand
at Rs. 6,00,000.
Current assets and current liabilities will reflect on this
company’s balance sheet as below -
Current Assets (Rs):
Cash in hand
Current Liabilities (Rs):
Here, the company’s
working capital balance
sheet can be ascertained by subtracting its
current liabilities from its current assets.
how to calculate working capital balance sheet -
Working Capital = Current Assets – Current
Working Capital = Rs. (10,00,000 – 6,00,000) = Rs.
The amount of a company’s working capital changes over
time due to varying operational situations.
Types Of Working Capital:
There are two types of working capital for an organisation
– positive working capital and negative working capital.
When a company holds more current assets than current
liabilities, it has a positive working capital. This enables the
business to fully cover its short-term liabilities, as and when
they come due in the next twelve months. Positive working
capital also signals the sound financial position of the entity.
On the downside, excessive positive working capital indicates an
oversight by a company in utilising its resources. Additional
funds parked in working capital reduce investment effectiveness
and the organisation; thus, misses out on growth opportunities.
When current liabilities are higher than current assets, it
means that the business has a negative working capital. It
signifies that this company has incurred a significant cash
outlay, which it is unable to meet. Negative working capital
further indicates an unstable financial position.
If the working capital balance sheet remains
negative for a considerable stretch of time, a company will
struggle to meet its obligations and rely on borrowings,
destabilising its financial conditions further. An effective way
to mitigate this situation is to opt for invoice
KredX has helped over 15,000 businesses with more than 5,00,000
discounted invoices. We enable easy access to a healthy cash
flow, so that businesses can operate, expand, and grow.
Working Capital Cycle:
The working capital cycle, or WCC, is the length of time that a
business takes to convert its total net working capital into
cash. Companies typically seek to manage this cycle through an
optimised collection of revenue from customers, selling-off
inventory, and paying bills steadily, all of which augment its
This cycle usually works for companies in the following way -
A company purchases raw materials for manufacturing its
products on credit under account payables. It settles the
payment in about 90 days, on average.
The company will sell its inventory on an average of 85 days.
- It receives payment from customers in about 20 days.
The working capital cycle can be calculated based on the
above-mentioned information as follows:
WCC = Inventory Days + Receivable Days – Payable Days
- WCC = 90 days + 85 days – 20 days = 15 days
The above calculation indicates that the company has its cash
locked in for 15 days.
Working Capital Management:
It is a business strategy ensuring that an organisation monitors
and uses its current assets to the best effect so that it
operates efficiently. Companies generally opt for external
manage their working capital, which includes -
Companies can avail these advances without pledging any
collateral. These loans are available against higher interest
rates, and require borrowers to meet strict eligibility
Businesses can avail a loan against property by pledging their
commercial or residential property as collateral. These loans
have a longer processing time, stringent eligibility criteria
and no tax exemption.
It is a finance facility, wherein companies can avail advances
on the payments owed by customers on their invoices. A business
offers its outstanding invoices to a financing company or
lender, which provides quick funding at a discounted rate. When
customers complete their due payment with the business, the
lender gets a portion of it.
KredX is a leading integrated cash flow solutions provider. Our
invoice discounting service
is collateral-free, which exempts businesses from pledging their
assets. We ensure complete transparency and secure transactions
with an easy digital process. At KredX, business owners can
avail easy and effortless financial solutions. This enables
working capital balance sheet requirements