Jaarrekening.be
A company can make a profit and still not pay its invoices. The difference often lies in working capital: the money available to run day-to-day operations. You can calculate it in a minute from any Belgian set of annual accounts.
The short answer
- Formula
- 29/58 minus 42/48
- Negative at
- 33.1% of companies
- Median current ratio
- 1.49
The formula with the codes
You need two figures from the balance sheet. Both appear in the micro, abbreviated and full formats.
| Item | Code | What it contains |
|---|---|---|
| Current assets | 29/58 | Amounts receivable after more than one year (29), inventories and contracts in progress (3), amounts receivable within one year (40/41), current investments (50/53), cash at bank and in hand (54/58) and deferred charges and accrued income (490/1) |
| Amounts payable within one year | 42/48 | Loan repayments falling due this year (42), financial debts such as an overdraft (43), trade debts (44), taxes, remuneration and social security (45), advance payments from customers (46) and other amounts payable (47/48) |
| Working capital | 29/58 minus 42/48 | In euros, positive or negative |
For a stricter version, subtract two more items. Amounts receivable after more than one year (29) do sit under current assets, but only turn into cash after more than a year. Accrued charges and deferred income on the liabilities side (492/3) are costs already incurred but not yet paid. This is how Jaarrekening.be calculates working capital:
working capital = (29/58 minus 29) minus (42/48 plus 492/3)
The same result from the top
You can also calculate working capital from the other side of the balance sheet: equity (10/15), provisions (16) and amounts payable after more than one year (17) together, minus formation expenses and fixed assets (20/28). That is the long-term money minus what is tied up in it for a long time. If the accruals are counted on both sides, both calculations give exactly the same result. This second view explains why working capital turns negative: the company invested more in fixed assets than it financed with its own money and long-term loans.
Worked example with Tegelhandel Wouters BV
A fictitious tile dealer with a showroom and its own warehouse. Its balance sheet on 31 December:
| Current assets | Amount | Amounts payable within one year | Amount |
|---|---|---|---|
| Inventories (3) | €450,000 | Repayments falling due this year (42) | €60,000 |
| Trade receivables (40) | €520,000 | Overdraft (43) | €150,000 |
| Other receivables (41) | €30,000 | Trade debts (44) | €560,000 |
| Cash at bank and in hand (54/58) | €180,000 | Taxes, remuneration and social security (45) | €130,000 |
| Deferred charges and accrued income (490/1) | €20,000 | Other amounts payable (47/48) | €50,000 |
| Total (29/58) | €1,200,000 | Total (42/48) | €950,000 |
-
Calculate working capital
€1,200,000 minus €950,000 gives €250,000. Adding the accruals on the liabilities side (say €10,000), as Jaarrekening.be does, brings it to €240,000. -
Convert it into a current ratio
€1,200,000 divided by €960,000 (short-term debt plus accruals) is 1.25. Without the accruals it is 1.26. For every euro falling due within the year, €1.25 of current assets is available. How to judge that ratio is explained in the article on the current ratio. -
Calculate the working capital requirement
Inventories and trade receivables together come to €970,000. Suppliers (€560,000) and the tax and social security authorities (€130,000) fund €690,000. So the operations of Wouters absorb €280,000. -
Compare the two
Working capital (€250,000) falls just short of the requirement (€280,000). The €30,000 gap is covered by the overdraft. That is the net cash position: cash, other receivables and deferred charges (€230,000) minus repayments, overdraft and other amounts payable (€260,000).
What negative working capital means
Negative working capital means that short-term debt is larger than current assets. Among Belgian companies, that is no exception.
- 33.1%
- have negative working capital (current ratio below 1)
- 1.49
- is the median current ratio
- 0.75
- or less at a quarter of companies
Whether that is a problem depends on how the company receives and spends its money.
- Healthy negative. A supermarket, a restaurant or an online shop gets paid in cash and pays its suppliers after thirty or sixty days. It has few trade receivables and fast-moving stock. At such businesses, negative working capital is often structural: the suppliers finance the operations.
- Worrying negative. A contractor, a wholesaler or a manufacturer invoices on credit terms and holds stock. If working capital is negative there, the company pays its bills with money from suppliers, the tax authorities or the bank. Then look above all at the debts for taxes, remuneration and social security (45): a company that lets those pile up is using the government as its bank.
- Temporarily negative. A loan that matures in a few months moves to code 42 and pushes working capital below zero for one year. If it is refinanced, the figure recovers. Look at the repayments (42) and compare with the year before.
Working capital over time
One balance sheet is a snapshot of a single day, usually 31 December. A company that collects from a large customer or delays paying its suppliers just before year end looks better than it does during the year. So read working capital over three years, and together with:
- cash (54/58): €250,000 of working capital with €5,000 in the bank is not the same as with €200,000;
- customer credit in days: if working capital rises because customers pay more slowly, that is no improvement. How to calculate it is explained in the DSO check;
- profit: a loss-making company eats into its working capital, even if the balance sheet still looks fine today.
Working capital on Jaarrekening.be
Find the company with company search and open Financial ratios. Under Liquidity you see working capital (labelled "Working capital"), the current ratio, the quick ratio and cash over several years. Working capital is calculated as above, with amounts receivable after more than one year taken out and the accruals on the liabilities side added. The "Working capital ratio" next to it is the plain ratio of 29/58 to 42/48, without those adjustments.
You can see the three most recent years with a free account. The longer series and the charts are part of Pro.
In short
Working capital is current assets (29/58) minus amounts payable within one year (42/48). Positive means the company can cover its short-term debt with what turns into cash within the year. Negative means part of the fixed assets is financed with short-term money. That is healthy for businesses that sell for cash, and a warning sign for those that invoice on credit terms. Put it next to the working capital requirement and cash, and read it over several years.