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Financial Terms | |
Working capital |
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Definition of Working capitalWorking capitalDefined as the difference in current assets and current liabilities (excluding short-term Working capitalCurrent assets less current liabilities. Money that revolves in the business as part of the process of buying, making and selling goods and services, particularly in relation to debtors, creditors, inventory and bank. working capitaltotal current assets minus total current liabilities Working capitalThe amount of a company’s current assets minus its current liabilities; Working CapitalCurrent assets minus current liabilities Working CapitalFunds invested in a company's cash, accounts receivable and inventory. Net working capital is current assets minus current liabilities.
Related Terms:Net working capitalCurrent assets minus current liabilities. Often simply referred to as working capital. net working capitalCurrent assets minus current liabilities. ![]() Working Capital CashThe cash component of working capital. Working capital managementThe management of current assets and current liabilities to maximize shortterm liquidity. Working capital ratioworking capital expressed as a percentage of sales. Assets requirementsA common element of a financial plan that describes projected capital spending and the Cash cycleIn general, the time between cash disbursement and cash collection. In net working capital Financial CovenantA feature of a debt or credit agreement that is designed to protect the lender or creditor. It is common to characterize covenants as either positive or negative covenants. Free cash flowsCash not required for operations or for reinvestment. Often defined as earnings before Indirect-Method FormatA format for the operating section of the cash-flow statement that LiquidityA measure of the ability of a business to pay its debts as they fall due – see also working capital. Margin callA demand for additional funds because of adverse price movement. Maintenance margin Operating cash flowEarnings before depreciation minus taxes. It measures the cash generated from Permanent CapitalFinancing needed for the normal operation of a business, that is long term capital and working capital. Restrictive covenantsProvisions that place constraints on the operations of borrowers, such as restrictions on Target rate of return pricingA method of pricing that estimates the desired return on investment to be achieved from the "Soft" Capital Rationingcapital rationing that under certain circumstances can be violated or even viewed Additional paid-in capitalAmounts in excess of the par value or stated value that have been paid by the public to acquire stock in the company; synonymous with capital in excess of par. Additional paid-in capitalAny payment received from investors for stock that exceeds additional paid-in capitalDifference between issue price and par value of stock. Also called capital surplus. Aggressive Capitalization Policiescapitalizing and reporting as assets significant portions of Aggressive Cost CapitalizationCost capitalization that stretches the flexibility within generally authorized share capitalMaximum number of shares that the company is permitted to issue, as specified in the firm’s articles of incorporation. Average cost of capitalA firm's required payout to the bondholders and to the stockholders expressed as a CapitalMoney invested in a firm. CAPITALThe money, raised by selling stock or bonds or taking out loans, that you use to start, operate, and grow a business. CapitalThe shareholders’ investment in the business; the difference between the assets and liabilities capitalA very broad term rooted in economic theory and referring to CapitalThe investment by a company’s owners in a business, plus the impact of any Capitala) Physical capital: buildings, equipment, and any materials used to produce other goods and services in the future rather than being consumed today. CapitalExpenditures Purchases of productive long-lived assets, in particular, items of property, CapitalAny asset or stock of assets, financial or physical, capable of producing income. Capital accountNet result of public and private international investment and lending activities. Capital AccountThat part of the balance of payments accounts that records demands for and supplies of a currency arising from purchases or sales of assets. Capital allocationdecision Allocation of invested funds between risk-free assets versus the risky portfolio. capital assetan asset used to generate revenues or cost savings Capital assetA fixed asset, something that is expected to have long-term usage within Capital asset pricing model (CAPM)An economic theory that describes the relationship between risk and Capital Asset Pricing Model (CAPM)A model for estimating equilibrium rates of return and values of capital asset pricing model (CAPM)Theory of the relationship between risk and return which states that the expected risk Capital budgetA firm's set of planned capital expenditures. capital budgetmanagement’s plan for investments in longterm capital budgetList of planned investment projects. Capital budgetingThe process of choosing the firm's long-term capital assets. capital budgetingRefers generally to analysis procedures for ranking Capital BudgetingThe process of ranking and selecting investment alternatives and capital budgetinga process of evaluating an entity’s proposed Capital budgetingThe series of steps one follows when justifying the decision to purchase capital budgeting decisionDecision as to which real assets the firm should acquire. Capital Consumption AllowanceSee depreciation. Capital Cost Allowance (CCA)The annual depreciation expense allowed by the Canadian Income Tax Act. Capital employedThe total of debt and equity, i.e. the total funds in the business. Capital expendituresAmount used during a particular period to acquire or improve long-term assets such as capital expendituresRefers to investments by a business in long-term Capital flightThe transfer of capital abroad in response to fears of political risk. Capital FlowsPurchase by foreigners of our assets (capital inflows) or our purchase of foreign assets (capital outflows). Capital gainWhen a stock is sold for a profit, it's the difference between the net sales price of securities and Capital gainThe gain recognized on the sale of a capital item (fixed asset), calculated Capital GainAn increase in the value of an asset. capital gainThe positive difference between the adjusted cost base of an investment held as a capital property and the proceeds of disposition you receive when you sell it. When you sell such an investment for more than you paid, you realize a capital gain. Capital gains yieldThe price change portion of a stock's return. CAPITAL IN EXCESS OF PAR VALUEWhat a company collected when it sold stock for more than the par value per share. Capital in excess parAmounts in excess of the par value or stated value that have been paid by the public to acquire stock in the company; synonymous with additional paid-in capital. capital investment analysisRefers to various techniques and procedures Capital InvestmentsMoney used to purchase fixed assets for a business, such as land, buildings, or machinery. Also, money invested in a business on the understanding that it will be used to purchase permanent assets rather than to cover day-to-day operating expenses. Capital leaseA lease obligation that has to be capitalized on the balance sheet. Capital leaseA lease in which the lessee obtains some ownership rights over the asset Capital LeaseOne where substantially all of the benefits and risks of ownership are transferred to the lessee. It must be reflected on the company's balance sheet as an asset and corresponding liability. Capital lossThe difference between the net cost of a security and the net sale price, if that security is sold at a loss. capital lossThe negative difference between the adjusted cost base of an investment held as a capital property and the proceeds of disposition you receive when you sell it. When you sell such an investment for less than you paid, you incur a capital loss. Capital marketThe market for trading long-term debt instruments (those that mature in more than one year). Capital marketThe market in which investors buy and sell shares of companies, normally associated with a Stock Exchange. Capital MarketA market that specializes in trading long-term, relatively high risk Capital MarketThe market in which savings are made available to those needing funds to undertake investment projects. A financial market in which longer-term (maturity greater than one year) bonds and stocks are traded. Capital market efficiencyReflects the relative amount of wealth wasted in making transactions. An efficient Capital market imperfections viewThe view that issuing debt is generally valuable but that the firm's Capital market line (CML)The line defined by every combination of the risk-free asset and the market portfolio. capital marketsMarkets for long-term financing. Capital MobilityA situation in which assets can easily be purchased by foreigners. Capital rationingPlacing one or more limits on the amount of new investment undertaken by a firm, either capital rationinga condition that exists when there is an capital rationingLimit set on the amount of funds available for investment. capital recoveryRefers to recouping, or regaining, invested capital over capital stockOwnership shares issued by a business corporation. A business Capital StockThe total amount of plant, equipment, and other physical capital. Capital structureThe makeup of the liabilities and stockholders' equity side of the balance sheet, especially Capital StructureThe combination of debt, preferred stock, and common stock used capital structureFirm’s mix of long-term financing. Capital StructureThe mix of the various types of debt and equity capital maintained by a firm. The more debt capital a firm has in its capital structure, the more highly leveraged the firm is considered to be. capital structure, or capitalizationTerms that refer to the combination of Capital surplusAmounts of directly contributed equity capital in excess of the par value. CapitalismAn economic system in which the marketplace, through the pricing mechanism, determines the allocation and distribution of scarce goods and services, with a minimum of government involvement. CapitalizationThe debt and/or equity mix that fund a firm's assets. CapitalizationThe total amount of debt and equity issued by a company. 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