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Uses of working capital

Can working capital be used for purchasing fixed assets ? Yes or No. Please explain with reason.  

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Working capital would not be used to purchase fixed assets. Working capital is simply the funds used for day-to-day business operations. That would be a long term investment decision. 

So … you want to trade inventory or accounts receivable for a delivery truck?

If you can find someone who will make the deal, why not?

But I suspect that it’s uncommon.

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Of course in theory a firm could use some funds from their working capital arrangements to fund a long-term investment. But, given the idea of working capital is essentially to minimize costs while not running the risk of being unable to pay for any operating expenses, it is extremely unlikely that a  firm would consider using its working capital resources (e.g. selling short term investments which may be needed in the future for OPEX) for this purpose. 

Is there a specific reporting standard that prohibits companies from using WC for Capex ? 

Theoretically, working capital should only finance current asset, but if the WC is negative that means the company finance fixed asset by using current liability which led to high probability to unable pay obligation/finance daily activity.

niko3226 wrote:

Is there a specific reporting standard that prohibits companies from using WC for Capex ? 

What does that even mean? When you purchase a fixed asset on credit, you have an account payable, which is a working capital item. Reporting standards would require you to classify it as a short-term payable, not prohibit it. 

Now, for deals purposes, it is important that net working capital is distinct from capex, so you would make an accounting adjustment to NWC to remove this short-term payable from the figure of NWC.