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Simple English definitions for legal terms
circulating capital
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A quick definition of circulating capital:
Circulating capital refers to the money or assets that a business has available for immediate use in its day-to-day operations. This includes things like cash, inventory, and accounts receivable. It is important for a business to have enough circulating capital to meet its current expenses and obligations. Other types of capital include fixed capital, which is money invested in long-term assets like land and machinery, and equity capital, which is money provided by a company's owners in exchange for ownership in the company.
A more thorough explanation:
Definition: Circulating capital refers to funds or assets that are not fixed and are used in the day-to-day operations of a business. It is also known as floating capital.
Example: A retail store uses circulating capital to purchase inventory, pay employees, and cover other expenses such as rent and utilities. These funds are constantly circulating and are not tied up in long-term investments or fixed assets.
This example illustrates how circulating capital is essential for businesses to operate smoothly. Without it, a business would not be able to cover its daily expenses and would eventually fail.