Floating capital definition
/What is Floating Capital?
Floating capital is the amount of funding needed by a business to pay for its immediate operational needs. At a general level, floating capital is working capital , which focuses on the current assets of a business, minus its current liabilities . More specifically, floating capital is the net amount of funding needed to pay for a firm's investments in receivables , prepaid expenses , and inventory . It does not include the funds invested in the fixed assets of a business.
Example of Floating Capital
Testosterone Corporation has $100,000 of trade receivables outstanding, as well as $50,000 of inventory, against which is offset $40,000 of trade payables. This means that the company has floating capital of $110,000, which is calculated as follows:
$100,000 Trade receivables + $50,000 Inventory - $40,000 Trade payables = $110,000 Floating capital
Terms Similar to Floating Capital
Floating capital is also known as circulating capital .
Floating Capital FAQs
How does floating capital differ from fixed capital?
Floating capital is invested in short-term operating needs, such as inventory, payroll, and receivables, and is continually recovered and reinvested through the business cycle. Fixed capital is committed to long-term assets, such as buildings, machinery, and equipment, that support operations over multiple periods.
