How to Calculate Fixed Working Capital?
How to Calculate Fixed Working Capital?
It is that working capital level below which your company has not gone on any given day in a year. It is important to be worked out for decisions relating to financing a blend of working capital and saving your company’s interest cost.
How to Calculate It?
There is no permanent working capital formula as such to calculate the precise amount. So what you get is an estimation made based on the entrepreneur’s experience. Statistical information on the current assets and current liabilities balances can help in determining this level. It is possible to plot your networking capital balance of each day inside a table and calculate the lowest figure in it.
One needs to know the net working capital and the variable or temporary WC requirement of each day to get an estimate of the fixed working capital. For instance, if the former is 3000, 2800, 2500 and 3200 for four days, and the latter is 500, 300, 0, and 700 for the exact number of days, the permanent working capital is 2500. Net working capital is subject to change because changes in current assets and current liabilities are expected every single day.
