quick working capital question (late night at work / no analysts around)
hey guys - simple question but literally no one is around to ask.
should wages payable go into the typical banking / PE definition of working capital?
thanks!
Is it capital that is required to keep your company working?
Typically, you really only care about AR/Inv/AP because the others are typically not necessary for daily operations (prepaid expenses, accrued expenses can be eliminated, etc).
My intuition is to say that that's not working capital because while you do need to pay those wages, you can just as easily pay them out and eliminate that line item going forward. If it's a recurring account and it make sense to keep it then you should project it.
of course. they are a current liability
I would include it, since it is necessary for daily operations. Typically you are only excluding debt. The post about only caring about AR/Inv/AP is more relevant for determining the Cash Conversion Cycle, rather than determining the whole Operating Working Capital, in my opinion.
you include it because they are sitting on your balance sheet as a current liability. the real definition and accounting usage for working capital is cash change from changes in current balance sheet items outside of short term debt ONLY because it's tied to cash flow from financing in your CF statement. There is an intellectual argument for actually including it for the purpose of analyzing WC needs though. In general you're free to put in whatever you want as long as you properly define it somewhere and know what you're doing.
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