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.