Components of Working Capital
All components of working capital can be found a company's balance sheet, though a company
may not have use for all elements of working capital discussed below. For example, a service
company that does not carry inventory will simply not factor inventory into its working capital
calculation.
Current assets listed include cash, accounts receivable, inventory, and other assets that are
expected to be liquidated or turned into cash in less than one year. Current liabilities include
accounts payable, wages, taxes payable, and the current portion of long-term debt that’s due
within one year.
Current Assets
Current assets are economic benefits that the company expects to receive within the next 12
months. The company has a claim or right to receive the financial benefit, and calculating
working capital poses the hypothetical situation of the company liquidating all items below into
cash.
• Cash and cash equivalents: All of the money the company has on hand. This includes foreign
currency and certain types of investments such as money market accounts with very low risk
and very low investment term periods.
• Inventory: All of the unsold goods being stored. This includes raw materials purchased to
manufacture, partially assembled inventory that is in process, and finished goods that have not
yet been sold.
• Accounts Receivable: All of the claims to cash for inventory items sold on credit. This should be
included net of any allowance for doubtful payments.
• Notes Receivable: All of the claims to cash for other agreements, often agreed to through a
physically signed agreement.
• Prepaid Expenses: All of the value for expenses paid in advance. Though it may be difficult to
liquidate these in the event of needing cash, they still carry short-term value and are included.
• Others: Any other short-term asset. An example is some companies may recognize a short-term
deferred tax asset that reduces a future liability.
Current Liabilities
Current liabilities are simply all debts a company owes or will owe within the next twelve
months. The overarching goal of working capital is to understand whether a company will be
able to cover all of these debts with the short-term assets it already has on hand.
• Accounts Payable: All unpaid invoices to vendors for supplies, raw materials, utilities, property
taxes, rent, or any other operating expense owed to an outside third party. Credit terms on
invoices are often net 30 days, so essentially all invoices are captured here.
• Wages Payable: All unpaid accrued salary and wages for staff members. Depending on the
timing of the company's payroll, this may only accrue up to one month's worth of wages (if the
All components of working capital can be found a company's balance sheet, though a company
may not have use for all elements of working capital discussed below. For example, a service
company that does not carry inventory will simply not factor inventory into its working capital
calculation.
Current assets listed include cash, accounts receivable, inventory, and other assets that are
expected to be liquidated or turned into cash in less than one year. Current liabilities include
accounts payable, wages, taxes payable, and the current portion of long-term debt that’s due
within one year.
Current Assets
Current assets are economic benefits that the company expects to receive within the next 12
months. The company has a claim or right to receive the financial benefit, and calculating
working capital poses the hypothetical situation of the company liquidating all items below into
cash.
• Cash and cash equivalents: All of the money the company has on hand. This includes foreign
currency and certain types of investments such as money market accounts with very low risk
and very low investment term periods.
• Inventory: All of the unsold goods being stored. This includes raw materials purchased to
manufacture, partially assembled inventory that is in process, and finished goods that have not
yet been sold.
• Accounts Receivable: All of the claims to cash for inventory items sold on credit. This should be
included net of any allowance for doubtful payments.
• Notes Receivable: All of the claims to cash for other agreements, often agreed to through a
physically signed agreement.
• Prepaid Expenses: All of the value for expenses paid in advance. Though it may be difficult to
liquidate these in the event of needing cash, they still carry short-term value and are included.
• Others: Any other short-term asset. An example is some companies may recognize a short-term
deferred tax asset that reduces a future liability.
Current Liabilities
Current liabilities are simply all debts a company owes or will owe within the next twelve
months. The overarching goal of working capital is to understand whether a company will be
able to cover all of these debts with the short-term assets it already has on hand.
• Accounts Payable: All unpaid invoices to vendors for supplies, raw materials, utilities, property
taxes, rent, or any other operating expense owed to an outside third party. Credit terms on
invoices are often net 30 days, so essentially all invoices are captured here.
• Wages Payable: All unpaid accrued salary and wages for staff members. Depending on the
timing of the company's payroll, this may only accrue up to one month's worth of wages (if the
