Circulating Capital

DEFINITION of 'Circulating Capital'

The portion of an organization's investment that is continually used and replenished in ongoing operations. Circulating capital can consist of operating expenses, raw material stock, inventories of finished goods or physical capital on hand. Circulating capital is the opposite of constant (fixed) capital.

BREAKING DOWN 'Circulating Capital'

By calculating circulating capital you will get a better understanding of how much capital is tied up to generate profit. Fixed capital, on the other hand, refers to funds that are tied up, but aren't generating much profit. For example, a very small percentage (or none) of the cash tied up in a building, such as a warehouse, can be associated with the production of goods and therefore profits.

RELATED TERMS
  1. Currency In Circulation

    Currency that is physically used to conduct transactions between ...
  2. Active Money

    The total value of coins and paper currency in circulation amongst ...
  3. Capital Formation

    A term used to describe net capital accumulation during an accounting ...
  4. Working Capital

    Working capital is a measure of both a company's efficiency and ...
  5. Capital Investment

    Funds invested in a firm or enterprise for the purposes of furthering ...
  6. Capital Flows

    The movement of money for the purpose of investment, trade or ...
Related Articles
  1. Economics

    Understanding Capital

    Capital has a variety of meanings, but it generally refers to financial resources.
  2. Fundamental Analysis

    Advantages of Maintaining Low Working Capital

    Understand the benefits and advantages of maintaining low working capital as related to liquidity needs, capital allocation and operational efficiency.
  3. Investing News

    Retail vs. Tech: How These Companies Use Working Capital

    Learn about the difference between retail and tech businesses' use of working capital and why working capital varies so widely in the technology sector.
  4. Professionals

    Introduction To Capital Investment Decisions

    Capital investments are funds invested in a firm or enterprise for the purposes of furthering its business objectives
  5. Fundamental Analysis

    Explaining Capital Employed

    Generally, capital employed refers to all of the assets used in a business that contribute to the company’s ability to earn revenue.
  6. Economics

    Understanding Capital Investment

    Capital investment is a term that describes a company’s expenditures for long-term assets used in the operation of its business.
  7. Economics

    How Central Banks Control The Supply Of Money

    A look at the ways central banks pump or drain money from the economy to keep it healthy.
  8. Economics

    Explaining Cost Of Capital

    Cost of capital is the cost of funds used to finance a business.
  9. Economics

    What's Economic Capital?

    While regulatory and economic capital use some of the same measurements of risk to determine how much capital a firm should hold in reserve, economic capital uses more realistic measures.
  10. Professionals

    Effects of Capitalizing Vs. Expensing

    CFA Level 1 - Effects of Capitalizing vs.Expensing. Learn the effects of capitalizing expenses, instead of incurring them. Shows effects of capitalizing on assets, ratios and profits.
RELATED FAQS
  1. How is working capital different from fixed capital?

    Understand the differences between working capital and fixed capital, including definitions and examples of how businesses ... Read Answer >>
  2. How does total capital investment influence economic growth?

    Discover the basic relationship between capital investment and economic growth, and why improving the capital structure increases ... Read Answer >>
  3. How does working capital management affect corporate earnings?

    Understand why it is critically important for companies to efficiently manage their working capital and how working capital ... Read Answer >>
  4. What is the difference between financial capital and economic capital?

    Read about the differences between types of financial capital, which companies use to raise money, and economic capital models ... Read Answer >>
  5. What does low working capital say about a company's financial prospects?

    Find out what it means when a company has low working capital, including how this metric is interpreted based on business ... Read Answer >>
  6. Does working capital include inventory?

    Learn about inventory that is part of current assets and working capital, which is the difference between current assets ... Read Answer >>
Hot Definitions
  1. Cost Of Debt

    The effective rate that a company pays on its current debt. This can be measured in either before- or after-tax returns; ...
  2. Yield Curve

    A line that plots the interest rates, at a set point in time, of bonds having equal credit quality, but differing maturity ...
  3. Stop-Limit Order

    An order placed with a broker that combines the features of stop order with those of a limit order. A stop-limit order will ...
  4. Keynesian Economics

    An economic theory of total spending in the economy and its effects on output and inflation. Keynesian economics was developed ...
  5. Society for Worldwide Interbank Financial Telecommunications ...

    A member-owned cooperative that provides safe and secure financial transactions for its members. Established in 1973, the ...
  6. Generally Accepted Accounting Principles - GAAP

    The common set of accounting principles, standards and procedures that companies use to compile their financial statements. ...
Trading Center