How to Define External Working Capital
Business is all about money. But, there are many different kinds of money. There is money coming in, money going out, actual currency, lines of credit, and so on. External working capital is one of these kinds of money.
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Instructions
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Define working capital first. Gross working capital is the money in a company's cash, accounts receivable and inventory. Net working capital is the money in a company's cash, accounts receivable and inventory minus current liabilities. These are the funds with which the company can directly or indirectly produce goods and services. Either way, these funds represent the money currently available to the organization to produce goods and services from raw materials.
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Defining external working capital then becomes a simple matter of separating internal working capital from external working capital. Internal working capital is any cash flow generated by business operations or accounting.
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External working capital is any cash flow generated by receiving money from an outside source. Common examples of external working capital include bank loans and certain credit extended.
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Tips & Warnings
Although bank loans and other arranged financing count as external working capital, funds raised via a bond issue do not.
