Working Capital
Operating working capital is the capital tied up in inventory and trade receivables, less trade payables.
In a simplified calculation, operating working capital equals inventory plus trade receivables less trade payables. It measures the capital committed to day-to-day operations.
A transaction agreement may set a target level. Differences from that target at the specified date can change the amount payable. The agreement must clearly define which items are included and how seasonal fluctuations are treated.
Example
Inventory of EUR 0.8 million and receivables of EUR 1.2 million, less trade payables of EUR 0.6 million, give operating working capital of EUR 1.4 million. If the agreement sets a target of EUR 1.2 million with a corresponding adjustment, the amount payable increases by EUR 0.2 million.
Operating working capital is the capital tied up in inventory and trade receivables, less trade payables.