Solvency and Working Capital

Working capital describes liquidity. No liquidity means eventually running out of cash. This shows how working capital is calculated in the balance sheet.

Equity and Liquidity

Net Ccrrent assets describe working capital, which in turn describes liquidity, which illustrates how strongly placed a business is to meet its liabilities going forward.

Net current assets, are calculated as follows:

Cash in the Bank and in Hand
plus: Cash Convertibles (within 1 year) e.g. Current Assets: Stock; Debtors; Prepayments
less: Current Liabilities (payable within 1 Year) e.g. Creditors; Asset Finance; the Overdraft
equals: Net current Assets / Working Capital


Note that fixed assets of any description play no role when calculating net current assets;  they omnly ever represent "illiquid" assets.

Working Capital and Cash Flow

Liquidity measures the ability of a business to pay its bills on time.

Its job is to generate sufficient cash within normal business activities as and when it's needed to pay the bills on time. If your Figurewizard balance sheet forecast is showing a deficit for working capital you will be predicting that will not happen.

As that is definitely not recommended it will be time to turn to the What-If Calculator to revise your projected figures.. 

Depleting Working Capital

Trading losses are not the only route to negative working capital deficit. Spending cash and creating new debt are inevitable bedfellows when investing in fixed assets. If that turns out to have been excessive though, negative working capital will be the result regardless of profits.

Forecasting Working Capital

Avoiding such problems calls for planning and that in turn relies on accurate and comprehensive forecasting.

This is what Figurewizard enables you to do, usually in less than ten minutes, and that includes calculating and applying all possible VAT and corporation tax liabilities without any intervention on your part.

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