Working capital (werkkapitaal)
The difference between current assets and current liabilities. Positive working capital leaves room to finance day-to-day operations.
What does working capital mean?
The difference between current assets and current liabilities. Positive working capital leaves room to finance day-to-day operations.
Net working capital is the difference between current assets and current liabilities. It differs from cash: inventory and receivables count. A negative amount can be normal for certain business models, but needs explanation.
How does it work?
Working capital, in full net working capital, is current assets minus current liabilities. The KVK (Dutch Chamber of Commerce) describes it as the amount with which you can pay the daily business costs. A positive balance means that part of the current assets is financed with long-term capital; with a negative balance, current liabilities also finance fixed assets.
The law does not mention the concept; it follows from the balance sheet layout of art. 2:364 DCC and the split of liabilities by term (art. 2:375(2) DCC). For operations, the change matters most. If turnover grows, inventory and accounts receivable grow with it and this has to be financed. Many businesses therefore track operating working capital: inventory plus accounts receivable minus accounts payable.
Example
A wholesale BV (private limited company) has € 110.000 of current assets (inventory € 50.000, accounts receivable € 45.000, bank € 15.000) and € 85.000 of current liabilities (accounts payable € 55.000, taxes € 12.000, loan repayment € 18.000). Working capital: 110.000 − 85.000 = € 25.000. The year after, turnover grows 20%; inventory and accounts receivable rise to € 60.000 and € 54.000, accounts payable to € 66.000. Extra funding need: (60.000 + 54.000 − 66.000) − (50.000 + 45.000 − 55.000) = 48.000 − 40.000 = € 8.000. That amount has to come from profit or credit, otherwise the bank balance falls from € 15.000 to € 7.000.
In the annual accounts
Derived from the balance sheet; not a mandatory line item of its own in the annual accounts.
Difference from the current ratio
The current ratio divides the same two figures by each other; working capital subtracts them. In the example the ratio is 110 / 85 = 1,29 and the working capital € 25.000. The ratio makes businesses of different sizes comparable; the amount shows how many euros are tied up or serve as a buffer.
Common mistakes
- Counting fixed assets
- Treating a positive balance as sufficient without a payment plan
What to watch for
- Calculate working capital per month and not only at the balance sheet date; a seasonal pattern stays invisible on 31 December.
- Track the three periods behind it: days of inventory, days of receivables and days of payables.
- Count the repayment that falls due within a year as a current liability; whoever forgets this shows too much working capital.
- From the filed balance sheet of a micro BV, working capital follows directly: it shows the current assets and the liabilities up to one year (art. 2:395a(4) DCC). Tool: ratio calculator.
Legal basis and source
no separate statutory ratio
Frequently asked questions
Is negative working capital always a problem?
No. A business that sells for cash and pays its suppliers later can operate structurally with negative working capital. It becomes a problem if the current liabilities cannot be paid from current receipts.
How do you reduce working capital?
By reducing inventory, invoicing and collecting faster, and agreeing longer payment terms with suppliers.
Read more
Preparing Dutch annual accounts?
Your first set of annual accounts is free, for every size class. Create an account and prepare the annual accounts of your Dutch company under Title 9 of Book 2 of the Dutch Civil Code.
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