What is Current Capital?

Malcolm Tatum
Malcolm Tatum

Current capital is often referred to as working capital. Essentially, current capital is the liquid financial assets that a company has on hand to manage the day to day operations of the company. Current capital is understood to be free of any other obligation, and is readily accessible at all times.

Current capital is a company's liquid assets -- like cash -- minus its current liabilities.
Current capital is a company's liquid assets -- like cash -- minus its current liabilities.

One important aspect in determining the amount of current capital is to allow for the necessity of covering any liabilities that are outstanding at the present time. For example, if a company currently has $50,000.00 US Dollars (USD) in the operating fund, and has current liabilities that come to $20,000.00 USD, then the current capital that is on hand to devote to the operation is $30,000.00 USD. In other words, cash on hand is not necessarily the same as current capital, unless there are no current liabilities to consider.

The presence of current capital at any given time is a strong indicator of the overall financial strength of the company.
The presence of current capital at any given time is a strong indicator of the overall financial strength of the company.

Assessing the status of current capital is important to any business. The presence of current capital at any given time is a strong indicator of the overall financial strength of the company, as it demonstrates the ability of the corporation to fulfill short-term obligations to various creditors, as well as compensate employees for their labors. Companies with little or no current capital are in need of re-evaluating the operational process and making changes that will help keep the operation profitable over the long term.

One of the goals of any financially stable company is to make sure there is a healthy balance between current assets and current liabilities. While current capital is only one part of the assets of any company, it is considered one of the most important. A company that is barely able to cover operational costs out of generated revenue is often considered a poor investment risk, and may have trouble attracting investors or other backers. By contrast, a company with a healthy amount of current capital on hand consistently is much more likely to be considered an excellent risk by investors, and have relatively little trouble selling stocks or bonds to interested parties.

Malcolm Tatum
Malcolm Tatum

After many years in the teleconferencing industry, Michael decided to embrace his passion for trivia, research, and writing by becoming a full-time freelance writer. Since then, he has contributed articles to a variety of print and online publications, including wiseGEEK, and his work has also appeared in poetry collections, devotional anthologies, and several newspapers. Malcolm’s other interests include collecting vinyl records, minor league baseball, and cycling.

You might also Like

Readers Also Love

Discuss this Article

Post your comments
Login:
Forgot password?
Register: