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In various resources I have seen working capital defined as “all current assets – all current liabilities” (which obviously includes cash) and also “inventory + receivables – payables – overdraft” (which does not)
The latter makes more sense to me, because cash cannot be tied up in cash, it is liquid and available.
Is this just a case of calculate the latter if the question provides sufficient information and the former if it does not?
But both are effectively the same because an overdraft is simply a negative cash balance.
So you’re saying that working capital is always “all current assets – all current liabilities” including positive or negative cash balances?
Thank you for the reply and all the ongoing hard work by the OpenTuition team.
That is the strict definition of working capital.
However, why are you asking? The reason I ask is that although the management of working capital is an important topic for Paper FM, the management of it is not asked in Paper AFM. In Paper AFM the main relevance is in investment appraisal questions (and for these, the definition is of much less relevance).
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