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.