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What is the item(s) that differentiates between the total investment and working capital?

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Question added by Moustafa Hassan , Accountant , Doha Institute for Graduate Studies
Date Posted: 2014/04/23
Rehan Qureshi
by Rehan Qureshi , Financial Consultant , Self Employeed

Fixed capital investments represent the acquisition and maintenance of long-term assets. A fixed capital investment can be tangible asset, such as a building, or an intangible asset, such as an intellectual property. Working capital refers to the deployment of financial resources in the day-to-day business operations. Investing in working capital involves acquiring short-term assets and incurring short-term liabilities. The fixed capital investment and working capital investment activities of the business are reported on a company's balance sheet.

Scope

Fixed capital investments serve strategic objectives -- that is, long-term plans of the business. The benefits of fixed capital investments are spread over several years. In contrast, working capital investments serve operational objectives -- that is, day-to-day activities of the business. Therefore, the scope of a fixed capital investment stretches several years ahead, while that of a working capital investment is limited specific accounting periods or fiscal years.

Liquidity

Liquidity is the ease with which business resources can be converted into cash. Working capital assets have high liquidity because they can readily be converted into cash. For example, a business can easily convert accounts receivables into cash through invoice factoring -- that is, selling invoices to third parties. Fixed capital assets, on the other hand, have low liquidity because they are expensive and require lengthy asset-disposal procedures.

Budgeting

Fixed capital investment decisions are made through capital budgeting processes. Capital budgeting involves comparing the cash flows a fixed asset investment can generate during its useful life. This is done using techniques such as net present value, internal rate of return and payback period. A fixed capital investment is accepted only when its potential cash inflows outweigh the cash outflows. The budgeting process for working capital investment is based on the estimated scope of operations for a particular accounting period or fiscal year.

Financing

Working capital investment is financed through short-term debt while fixed capital investment is financed through long-term debt. Short-term debts are lines of credit, such as bank overdrafts, that are repayable within a year. They are listed as current liabilities in the balance sheet. Long-term debts are repayable over longer periods of time. They are listed as long-term liabilities in the balance sheet.

Procurement

Working capital investment must be procured with urgency to facilitate smooth business operations. For example, a manufacturing business must always have sufficient inventory to avoid unnecessary interruptions of production activities. The procurement of fixed capital investment is a lengthy process, especially when it involves borrowing finance from external sources.

Shafiulla Mohammad
by Shafiulla Mohammad , Customer Service Adviser , University of Bedfordshire

Investment deals with Non Current Assest whereas on the other hand Working Capital deal with current assets and liabilities.

Muhammad Akram Shahzad Mughal
by Muhammad Akram Shahzad Mughal , Assist. Manager Inventory & Warehouse , KahrPlast Co.

Working capital is a narrower definition of the resources used in a firm's operations. Working capital focuses on the day-to-day operations and, therefore, includes only items such as inventory, cash, raw materials and accounts receivable.

 

Total Investments Represent investment in securities which directly or indirectly creates a loan made by the bank.

Yusuf Dalal
by Yusuf Dalal , General Accountant. , Gmamco Contracting LLC

All the non current assets are the items which are the part of the total investments but not the part of the working capital

 

Fixed Assets is one the example which is the part of the total investment but not the part of the working capital.

 

The second example is the Investments in deferred revenue expenditure...

Deleted user
by Deleted user

Working capital + Fixed assets = total investment

Abdul Wahab
by Abdul Wahab , Credit Controller , Takween Advanced Industries

Working Capital =  Current Assests - Current Laibilities

Invested capital represents the total cash investment

Divyesh Patel
by Divyesh Patel , Assistant Professional Officer- Treasury , City Of Cape Town

Working capital is the difference between current assets and current liabilitie.

working capital = current assets - current liabilitie

 

Diesella Jalbuena
by Diesella Jalbuena , Document Controller , QD-CPC National Asphalt Factory

Fixed capital investments serve strategic objectives -- that is, long-term plans of the business. The benefits of fixed capital investments are spread over several years. In contrast, working capital investments serve operational objectives -- that is, day-to-day activities of the business. Therefore, the scope of a fixed capital investment stretches several years ahead, while that of a working capital investment is limited specific accounting periods or fiscal years.

imdhiyas kaja
by imdhiyas kaja , Accounts officer , Grupo Antolin Pune Pvt Ltd

1,Working Captal dealt with CA-CL

2.Total Investment Meants Total Asset - Total liablity (except Share Capital ).....

3.Difference between two Working capital shows company Financial Position on particular time whereas Total investment shows  Share holders value.

 

 

 

Juanito Jr De Guzman
by Juanito Jr De Guzman , Chief Accountant , Zen FZE

Current & Non-Current portions of Assets & Liabilities.

 

Working capital- Current Assets Less Current Liabilites

Total Investment- Total Assets (Current & Non-Current) Less Total Liabilities (Current & Non-Current)

Umer Aziz
by Umer Aziz , Senior Accountant , TERNA Bahrain Holding - GEK Group (www.terna.gr)

The difference is that investment is considered as Noncurrect Asset, For Example : Investment in subsidiary or associates on the other hand Wroking Capital is calculated as Net Diff b/w Current Asset & Current Liabilities.

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