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.