Forums › Ask ACCA Tutor Forums › Ask the Tutor ACCA FR Exams › Operating Capital
- This topic has 2 replies, 2 voices, and was last updated 7 years ago by MikeLittle.
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- August 24, 2016 at 5:08 pm #334949
Hi Mike,
I will appreciate if you could help me with the concept of Operating Capital.
Firstly, what exactly is the meaning of the word/ concept of “operating capital” and how is the CONCEPT different from working capital?
Secondly, if operating capital is also known as “physical capital” and is calculated as the sum of Non-current assets, inventories and monetary working capital, is intangible non current asset not included as part of it as it is not “physical”?
Also, when you say “monetary working capita”l, I believe it is cash and cash equivalent, right? But is it net off of any bank OD?
August 24, 2016 at 5:13 pm #334951Also, are long term investments part of operating capital?
And if financial capital is shares and reserves, that means net profit is also a part of financial capital right?August 24, 2016 at 5:53 pm #334961Operating capital is working capital plus those non-current assets such as PPE
Gross working capital is the figure for current assets whereas working capital is current assets less current liabilities
An entity may have lots of assets and profitability but could be short of liquidity if its assets cannot readily be converted into cash. Positive working capital is necessary to ensure that a firm is able to continue its operations and that it has sufficient funds to satisfy both maturing short-term debt and upcoming operational expenses.
Management of working capital involves managing inventories, accounts receivable and payable, and cash.
‘But is it net off of any bank OD?’ – yes
‘Also, are long term investments part of operating capital?’ – this depends on whether these long-term investments are able to be converted into short-term cash and that depends entirely on the wording of the long-term investment contract
‘that means net profit is also a part of financial capital right?’ – yes because ‘net profit’ is a part of ‘reserves’
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