Net working capital of the company is calculated as the difference between current assets and liabilities.In the usual sense of working capital is often equated to the fluid assets.Similarly, the current assets in the balance Russia generally coincide with the concept of current assets, despite the fact that accountants often equated it with working capital net working capital.
also operates the notion of working capital provided by operating activities.This economic category, which is also called the flow of funds derived from operations related to the amount of non-cash expenses and net income.
Current and net current assets and liabilities
Current assets include what is possible in a relatively short time to monetize.For current liabilities include liabilities that must be settled in the near future.The Russian accounting standards can be found an explanation of such a distinction of assets and liabilities.It is assumed that the short and long term value of the segment delimited by a temporary period of one year.However, in order to develop, planning and analysis of fiscal policy organization often takes its own criteria of time.It all depends on the direction of its work, the profitability of products and its position in the market.
less significant data criteria for companies that require rapid turnover of funds, such as retail.In contrast, for organizations with slow turnover, such as shipbuilding, these figures take greater importance.A very important issue for the company is to coordinate payments on short-term assets and income from short-term liabilities.
internal sources, which adds to the net working capital, retained earnings advocates and other savings, deferred or non-cash expenses such as taxes payable, depreciation and sale of non-current (fixed) assets.The external sources, to replenish working capital, carry trade and short-term bank loans, issuance of securities and other loans, the proceeds of which fixed assets are not invested.
Net working capital: the formula management
important objective of economic policy is the management of net working capital.The reason for this lies in the fact that the net working capital - let it not quite accurate, but still characteristic of the company's liquidity and its ability to fulfill obligations, the guarantee of non-bankruptcy.If you exceed the current short-term liabilities over assets can be said about a significantly increased risk of insolvency of the company.
Besides a large number of net working capital may indicate a significant accumulation of outstanding receivables or illiquid, unsold inventories (current liquidity is the ratio of current assets and liabilities).This factor is the reason why the net working capital can not be precise characterization of the stability of the company.
Besides stocks, which are an important part of current assets, may be valued using different methods, resulting in the value of the working capital may vary considerably.There is a certain pattern, which shows that the increase in working capital is as increasing shareholder wealth and the reduction of fixed capital or an increase in long-term debt.
Thus, the net working capital management should solve the problem of finding the best balance between profitability and liquidity.As a rule, current assets have better liquidity, but less profitable, in contrast to the fixed assets.
