Components of Working Capital

Look again at the financial statement of Squishies Ltd, shown in Table 4.16

Table 4.16: Squishies Ltd: financial statement, Year 1

We see that Squishies has an investment of 200,000 in working capital. You will also see these headings referred to as current assets the terms are used interchangeably.

Remember that the balance sheet is drawn up at a particular point in time. The different balance sheet headings show the value of the assets and liabilities at that point in time.

See the earlier section in this book, Making assets work harder , for a description of balance sheet headings.

As a reminder, the headings are as follows:

Stock

This represents the value of all the raw materials, work-in-progress and finished goods.

Debtors

This is the total amount owed to us by our customers, or to put it another way, all sales invoices unpaid at the balance sheet date.

Bank

This is simply the amount of money we have in the bank, or if we have gone into the red, the amount of money we owe the bank.

Creditors

The mirror image of debtors this represents the total amount we owe our suppliers at the balance sheet date.

Squishies is a manufacturing company...